Update 5 July 2022

It was great seeing many of you last week at the HBI conference in London. The presentations and discussions were (as always) good, but played a secondary role to meeting and talking face-to-face with old and new friends. A special welcome to the people I met in London and who are now receiving my updates on the Dutch

In this update on the Dutch healthcare sector, we cover:

• Actief Zorg continues growing through acquisitions. Is the strategy to become a national homecare provider?
• Hospitals had reasonable results in 2021. Do they have the financial strength to meet coming challenges?
• Government takes a more active role in developing interoperability between systems and data flows between healthcare operators. Will it help the sector solve key problems?

Actief Zorg continues growth through acquisitions

The Dutch homecare market is going through a period of change driven by factors such as growing demand (driven by demographics and a push from government to move elderly care away from nursing homes to clients’ homes), consolidation as organizations develop a regional / national footprint, and an increasing number of commercial providers.

One of the leading commercial providers is Actief Zorg. We have written extensively about Actief Zorg during the last few years. In the update of 29 March we raised questions about the effects on their profitability of continuously acquiring small (almost) bankrupt homecare providers. Actief Zorg seems to be continuing with its growth strategy and has recently announced the acquisition of Arons Thuiszorg. Arons is a traditional non-profit homecare provider with revenues of €13 million (down from the previous year) and approximately three hundred employees. Arons has made a loss of €0.4 million in each of the two last years.

This acquisition is considerably larger than previous purchases but seems to follow the strategy of buying low-performing companies. The director of Actief Zorg says that growth is not a goal in itself but that size enables the company to provide care efficiently. The key question is when the ongoing acquisitions will lead to improved profitability.

Reasonable hospital results in 2021

In a recent study Verstegen Accountants and Intrakoop have analyzed the published 2021 annual reports of Dutch hospitals (62 in total representing 80% of the turnover in the sector). The average profitability of the sector was 1.3% (ROS). This is 0.1% higher than in 2020. Three hospitals made a loss in 2021 but this was due to specific and incidental issues. Revenues grew by 3.1% compared to 2020, but this was balanced by a robust growth in costs, particularly costs related to personnel. Higher personnel-related costs were due to a combination of factors:

• Salary increases based on collective agreements
• An average of 6% of staff being on sick leave
• Outflow of staff that was six (!) times higher than the previous year resulting in high costs related to recruitment
• Sick-leave and outflow resulting in an increased use of (expensive) temporary staff

The profitability level of 1.6% is an improvement on the previous year but still means that the hospitals have razor-thin margins. In 2022 the hospitals are facing new challenges as the financial corona-related support from the government and healthcare insurance companies will be phased out. In addition, hospitals are having to deal with sky-high energy costs (in some cases increasing by 300%).

Another challenge that hospitals face is financing required investments in technology and IT. In a separate report, KPMG highlights that Dutch hospitals do not have sufficient financial room to invest in new IT solutions. The key reason for this is that a growing share of the total IT budgets are needed for operating and maintaining existing IT-systems leaving less room for investing in new systems and technologies. An additional challenge is that new investments invariably lead to high maintenance and operational costs, further reducing the room for new investments. The investments in IT will lead to reduced costs, but only after a period of higher costs. To meet these challenges hospitals will need to increase profitability.

Government takes a more pro-active role in developing interoperability of IT systems in the healthcare sector

As reported in an earlier update hospitals are phasing out old technology. Communication between healthcare operators and IT-systems (interoperability) is a cornerstone for both improving quality of care and reducing costs. In the past few months there has been a considerable number of complaints concerning the extremely high profitability of the Dutch market leader in EPD systems (Chipsoft with a profitability of almost 50%), the high degree of vendor lock-in in key systems and non-transparent and high-cost increases in annual maintenance fees for systems.

To address these issues the Dutch Authority for Consumers and Markets (ACM) has decided to start an official process to look at key IT-suppliers to the healthcare sector. The ACM has requested healthcare organizations to provide examples of situations where IT-suppliers (proactively) hinder interoperability, have “unreasonable” contracts, and/or charge excessive prices.

The Ministry of health has also decided to make interoperability and communication between operators a key issue. Interoperability and communication are a key element of the Integral Healthcare Agreement (IZA) being developed by the ministry in cooperation with key players from the sector. The key goal of the IZA is to jointly make plans for structurally improving the Dutch healthcare sector. Primarily the Minister wants agreements related to interoperability to be made between the parties in the sector (operators and providers of IT-related services), but she leaves the door open for ensuring interoperability through changes to laws and regulations.