Aug14

Update 14 August 2017

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

  • Discussions related to the participants in the new government have started up after a summer break. What will be the consequences of the new government for the attractiveness of the Dutch healthcare sector for foreign investors?
  • Contracts between municipalities and healthcare service providers must be cost based? Is this positive or negative for the service providers?
  • The profitability of the psychiatric care sector in 2016 was halved in comparison to 2015, but small focused organizations did well. Are there “pearls” to be found?
  • In our snapshot, we give an overview of HSK, a private provider of psychiatric care.

Effect of new government on Dutch healthcare sector

The Netherlands held elections for parliament on 15 March. Five months later The Netherlands still does not have a new government. The formation of a new government is complicated due to seats in parliament being divided among 13 parties (two more parties than in the last election) and the largest party having only 22% of the seats. In addition, all other parties refuse to enter a coalition with the second-largest party (PVV) due to its extremist views.

The ongoing formation-related discussions are being carried out by four parties (a combination of conservative, Christian Democratic, and Social Liberal parties). The key healthcare related issues in the election were related to the power of the insurance companies that manage the compulsory healthcare insurance, and the level of own-risk that patients should bear.

In the election process, there were no discussions directly related to free markets and competition in the sector. However, key parties in this probable coalition are pro free market and competition in the healthcare sector. All the parties are for making clients pay directly for their living accommodations and positive to Personal Budgets and the freedom of patients to choose their service provider (and still get reimbursed by the insurance companies). All in all, we believe that the new government will be positive to private healthcare companies and foreign entrants.

New law suggests cost-based contracts between municipalities and healthcare providers

The transfer of a wide ranges of services from the central government to municipalities in 2015 was combined with a large reduction in budgets (up to 30%). As a result, municipalities focused on price as the key purchasing criteria, which again forced providers of healthcare and social services to reduce costs by hiring less qualified staff and sometimes signing loss-making contracts. This again lead to many bankruptcies in large organizations providing home-care.

An amendment to the Wet Maatschappelijke Ondersteuning (WMO) (Social Support Act) is meant to stop the “race to the bottom” for costs and quality in the social services provided by the municipalities. Earlier this week the Association of Dutch Municipalities (VNG) published a document suggesting that service providers should be forced to provide cost-based tariffs to show that they are paying salaries in line with the results of agreed collective wage agreements and do not have high overhead costs.

This will have mixed results for the service providers. The positive effect is that it will provide a minimum level of tariffs for the services provided. The negative effect will be that the municipalities are very likely to use the provided cost data to squeeze profits out of the contracts. Interesting times ahead.

Profits halved in psychiatric care sector, but small players are doing well

In last update, we described the results of an analysis carried out on the financial situation of the Dutch elderly care sector. This week a similar report was published on the profitability of the psychiatric care sector. The sector is profitable, but profits have halved from the level in 2015 to €51 million in 2016. This is a margin of less than 1% on revenues of €6.3 billion.

There is an interesting difference between the large traditional providers who have low margins and the smaller more focused organizations that achieve margins of 5% or higher. The smaller organizations are often young, have a limited service portfolio, and often work on an outpatient basis in a limited number of regions. Are there interesting companies that can serve as a starting point for building a national chain?

Snapshot of Dutch private sector healthcare operator: HSK

HSK is a private provider of psychiatric care. The company was established in 1991 by three partners and became a limited company in 1998 with the name HSK Groep B.V. In 2006 two Dutch Private Equity companies invested in HSK Groep to finance the growth to become a national chain.

HSK today has 28 locations spread across The Netherlands and employs 425 people, of which 325 are psychologists and seven psychiatrists. Revenues in 2016 were €26.2 million and the company made a profit of €1.2 million. The long-term prospects for HSK are positive as psychiatric care increasingly is being moved to outpatient care.

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