Update 24 August 2021

I am back from my holidays. First we had a week in Italy which was very beautiful but also incredibly hot and crowded. We therefore came back a week earlier than planned and went bicycling on the Hoge Vennbahn (can be highly recommended) and walking in the Netherlands. Different weather from Italy but also very nice.

The Dutch healthcare sector has not stood still during the summer months. In this update we cover:

• Canadian REIT invests in Dutch hospital real estate. Will more hospitals and investors follow this new trend?
• Traditional providers of nursing home care are not planning to develop sufficient new capacity to meet expected demand. Opportunity for commercial providers and real estate investors?
• Move towards VPT financing (where the client pays real estate costs directly) gain traction with traditional providers. What are advantages and disadvantages?
• Managing GP-chain more complex than expected, Quin to sell GP-practices. How will e-health solutions be sold?

Canadian REIT invests in Dutch hospital real estate

The Albert Schweitzer Hospital is a medium-sized general hospital with approximately €400 million in annual revenues located in the central part of the Netherlands. NorthWest Healthcare Properties is a Canadian REIT focusing on medical office buildings, clinics, and hospitals. The company has offices in five countries and an investment portfolio of more than 180 buildings.

NorthWest  was already present in the Dutch healthcare real-estate market with two smaller investments (a clinic and a mixed-use medical office building). It was recently announced that the Albert Schweitzer Hospital will be selling a total of 38.000 m2 across several buildings to NorthWest. The buildings are partly in use by the hospital (clinics, emergency care, and offices) and is partly rented out to healthcare-related third parties. The total value of the deal is approximately €110 million.

Dutch hospitals have been getting more creative in their real-estate financing but up until now this has typically meant using more creative forms of bank financing or entering joint ventures with developers for new buildings. This is the first time that a hospital sells a substantial portion of its real-estate to a REIT. Will we be seeing more of this type of deal?

Traditional providers will not develop sufficient nursing home capacity to meet expected demand

According to an analysis by TNO (The Dutch Organization for Applied Sciences) the number of clients requiring nursing home care will grow by 37% in the period up to 2030. Meeting this demand will require the development of 25.000 extra beds / apartments in new or existing nursing home facilities. Already in the next four years capacity will need to grow by 16%

In a recent study among financial professionals working in the elderly care sector (conducted by consultants Finance Ideas) one of the questions concerned expansion plans. The average capacity growth expected for the next four years  was 6%. This means that there will be a large gap between demand and supply for nursing home care in the coming years. Who will help to fill the gap left by the traditional (non-profit) operators? This is definitely an opportunity for the growing commercial nursing home sector (lead by Orpea and Korian). While financing of the real estate is not the only issue stopping traditional organizations from growing faster this situation also highlights the opportunity for real estate investors interested in the Dutch healthcare sector.

Move towards VPT financing gains traction

Highlighted in the same study by Finance Ideas was that most traditional healthcare organizations expect the care in any new capacity they build to be financed by a VPT-package instead of the more traditional ZIN. Both financing forms are part of the central-government lead financing of long-term care. The key difference is that with ZIN the operator gets paid a sum per client that is meant to cover both healthcare and real-estate costs. In the VPT-form organizations only gets paid for the healthcare services provided. The client is assumed to live at “home” and cover his/her own rental costs. Typically, the client will live in a nursing home but pay rental costs directly to the operator.

The government favors this model because it wants to reduce its own elderly-care related costs. VPT financing gives operators more flexibility in the types of accommodations they provide (size, quality, costs, etc.). It can also be beneficial for the client (depending on income and wealth) as using VPT reduces the co-payments that the client must make via the tax system. The primary users of VPT have been commercial nursing home providers. I am curious as to when the majority of nursing home financing is via VPT.

Quin  to sell GP-practices

In the update of 9 February 2021 we explained how Bart Malenstein (who recently sold a majority share of Bergman Clinics to Triton) was setting up a new company with the goal of digitizing the patient journey. Due to high resistance from GPs to implement the system, Quin had decided to enter the physical market and acquired 12 GP-practices in the Netherlands with more than 50.000 patients and had a stated goal of acquiring or franchising more GP-practices.

Apparently running GP-practices is  quite different from running a chain of specialized clinics and developing software. The Quin-owned practices quickly ran into problems related to capacity management. Newspapers ran articles with patients complaining about having to wait for days before getting an appointment and not trusting the IT-solutions provided by Quin. Quin has now therefore decided to sell the GP-practices and focus on the further development of its IT-platform.

Given that the original reason for buying the GP-practices was to deal with high resistance from GPs to implement the system it will be interesting to see how Quin will market itself going forward. There is a clear need for e-health based solutions in the primary care field and hopefully Quin (and other providers) will develop tools that are accepted by doctors and patients.