Updates
Jun09

Update 9 June 2020

One of the stranger effects of the corona-crisis for me personally is that I have become much more interested in my garden. In addition to buying plants, this involves worrying whether the plants have enough water. I am therefore quite happy that we have had a couple of days of rain recently. In this update we cover a wide range of news from the Dutch healthcare sector:

  • Lower results for Buurtzorg in 2019. What does the future look like?
  • Only half of independent clinics have made use of the “continuation payments” for supporting the Dutch healthcare sector through the corona-crisis. Why not the rest?
  • Yet another hospital-merger is called off. Who will be next?
  • Correction: Location to be refurbished by Cofinimmo will fit within the housing component of the traditional Dutch nursing home financing

Lower results for Buurtzorg

Buurtzorg has recently published its 2019 annual report. Revenues have increased from €417 million in 2018 to €427 million in 2019, but the net result declines by one-third from €7.5 million in 2018 to €5.0 million in 2019. The main reason for the decrease in results are losses on home-care provided for long-term care patients (often elderly patients waiting for a place in a nursing home) and higher personnel costs  (due to higher salaries and high demand for healthcare workers). Positive results were provided by the home-care services purchased by municipalities (typically fairly low-level cleaning and help-in-house services). Buurtzorg started providing these services in 2016 when it acquired a large part of the activities of TSN. TSN was at that time the largest provider of household-related homecare services in the Netherlands but went bankrupt after many years of losses.

It is interesting to see that Buurtzorg manages to make money on the fairly simple activities purchased by municipalities but makes a loss on the activities financed by the long-term care law. Most home-care providers view the higher tariffs and more hours per week that are available under the long-term care law as more attractive. The CEO of Buurtzorg, Jos de Blok, says that the hourly tariffs provided by the Care Offices are too low and that this encourages providers to invoice more hours thus increasing overall costs. He claims that the insurance companies (who finance the bulk of Buurtzorg’s business) are much better at managing costs on a per-patient base. As the Care Offices are managed by the healthcare insurance companies it is strange that best practices are not transferred.

The corona-crisis has had impact on Buurtzorg as well (15% reduction in activities and higher costs), but the longer-term effects will be minimal. A key reason for this are the multi-year contracts that Buurtzorg has with many insurance companies. Overall, Buurtzorg expects 2020 to be a profitable year.

Only half of commercial clinics have made use of continuation financing

As explained in the update of 12 May the Dutch government and the healthcare insurance companies have put in place a fairly generous system to compensate healthcare providers for loss of revenues due to the corona-crisis.  A total of 4.900 healthcare organizations with revenues lower that €10 million (the limit for the standard help package) have requested aid. Sixty-four of these organizations are independent commercial clinics. This is 50% of the 130 companies that are members of the trade association for independent clinics. Why have the other independent clinics not (yet) made use of the aid package? It is difficult to conceive that  revenue has not sharply declined in the relevant period for all the clinics and the aid package would compensate for 75% of the reduction. A possible reason is that they expect  revenues to bounce back so rapidly that the repayment schedule would be unattractive.

Yet another hospital merger called off

Four hospitals in the northern part of the Netherlands (Friesland, with a population of 650.000) have been working for seven years on a process to concentrate specialized activities in a reduced number of locations. This process has now been stopped as the independent hospitals have decided that there are insufficient advantages in continuing the process. This is the last of many such cases (see update of 12 May and update of 4 February for other examples), and while the specific reasons for each case vary, the trend is clearly away from larger hospital organizations towards smaller, more focused organizations with stronger links to their local networks.

Refurbished location in The Hague will fit within traditional Dutch nursing home financing

In the previous update the intro-title could be read to suggest that a recent investment by Cofinimmo would lead to rental costs at a level where the financing of the nursing home services would need to take place outside of the traditional Dutch nursing home financing system (ZIN). Cofinimmo have communicated to me that according to the overall contract with HWW Zorg the refurbished apartments will fit within the ZIN-financing and that future clients will not need to pay housing costs themselves. This means that HWW Zorg can continue to provide services to lower-income groups.

The overall trend in the market towards rental costs being financed by clients directly is clearly set to continue. It is good to see that the real estate investment companies are also willing and able to help nursing home operators wanting to use the traditional form of financing (including real estate costs) as this usually is beneficial for lower-income groups.