Update 12 September 2017
Welcome to the newest update on private healthcare in the Netherlands. I assume that everybody is now back from well-earned holidays and is looking for new market opportunities. In this newsletter we cover the following news and issues:
- Payments models for the psychiatric care sector to be changed to the “English model”. Will this make the Dutch psychiatric care market more attractive for foreign investors?
- The profitability of the handicap care sector is reasonable, especially among smaller organizations. Are there interesting acquisition targets?
- In our snapshot we give an overview of ViaSana, a clinic specializing in orthopedic care
Payment model for psychiatric care to be changed
Currently cure-related psychiatric activities are financed by the same system used for hospitals. A DBC (Diagnose Behandel Combinatie, or Diagnostic Treatment Combination) is a code that covers all activities required by a hospital (or psychiatric organization) to diagnose and treat a given affliction. The code gives the right to the service provider to charge a given amount to the insurance company.
The DBC methodology has been very unpopular among psychiatrist, psychiatric hospitals, and other service providers. The main reasons are:
- Difficulties in providing the right care to individual patients as the standard DBCs either provided too much time or too little time to adequately serve the patient
- DSM labels have been turned into payment codes, as a DBC is always dependent on an accepted diagnosis
- Questions related to the privacy of patients as the DBC codes used to declare costs to the insurance companies give personal healthcare related information to the insurance companies
- Insurance companies are using the DBC codes to influence the care provided to individual clients (often by down-coding to save costs)
The new payment model will be rolled out in 2020, but there will be pilots carried out earlier. The new system will be based on the English Mental Healthcare Clusters Model. This model is much more focused on the specific needs of the patient, and is more flexible as it has built-in evaluation moments which have influence on the future care-path to be taken and the financial costs associated with these.
As UK-based organizations focusing on psychiatric care are used to working in this system, an entry to the Dutch market for psychiatric care should become easier.
Profitability in handicap-sector is reasonable
In previous updates we have presented the results of the analysis carried out by Verstegen Accountants on the annual reports of Dutch organizations in the elderly care sector and psychiatric care sector. These were not very positive as the elderly care sector was loss-making, and profits in the psychiatric sector halved from 2015 to 2016.
The handicap-sector performed reasonably well even though results were reduced from 2015 to 2016 (from €175 million to €134 million). The reduced profits were mainly due to higher personnel costs, but most of the increase was a one-off cost related to corrections in salary costs going back five years.
The analysis is based on the annual reports of 168 organizations active in the handicap sector representing 97% of the revenues in the sector. 28% of these organizations made a loss in 2016. As we have seen in the other sectors, profitability seems to be negatively correlated with size. The small organizations (revenues up to €10 million) collectively had Return on Sales (ROS) of 4.7% compared to an average ROS of 1.6% and an ROS of 1.1% for the organizations with more than €300 million in revenues. The higher results of the smaller organizations are due to specialization, less overhead, and effective processes.
Are there “hidden pearls” in this sector that are attractive acquisition targets?
Snapshot of Dutch private sector healthcare operator: ViaSana
ViaSana is a private clinic specializing in movement-related and pain issues (orthopedics). The clinic was established in 2005 and has since then carried out more than 40.000 operations (currently approximately 5.000 per year). Most operations do not require an overnight stay, but ViaSana also has private rooms for patients requiring this. The clinic now has 13 specialists and more than 100 employees. Almost all the activities carried out by ViaSana are covered by contracts with the major insurance companies. ViaSana is privately owned.