Update 26 January 2021

January has gone fast. Last week we even had snow here in the Netherlands. It did not last long and might very well be the only snow we will see this season. In the meanwhile, there have been several new developments in the Dutch healthcare sector. In this update we cover:

• Low tariffs lead to exodus from social care domain. How can this be countered?
• Specialized clinics agree collective salary agreement with union. What are consequences for profitability?
• Consolidation in pathology / diagnostics sector. Will the trend continue?

Exodus from social care sector

Since 2015 the municipalities in the Netherlands purchase and pay for a wide range of social / healthcare services. Key examples are youth care, domiciliary care and until the beginning of 2021 lighter forms of long-term mental healthcare.  The financing of these activities is part of the general financing that the municipalities receive from the central government.

Many municipalities have had and expect shortfalls in the financing of these services. The financing from the central government is seen as not being sufficient to meet the increasing demand due to an aging population, increased costs per client and increased demand due to decreased co-payments. In response to limited budgets municipalities have lowered tariffs for the services they purchase to levels which suppliers claim are not covering their costs. In addition to dealing with low tariffs providers have high administrative costs as each municipality (352 in 2021) has different processes related to (annual) contracting and varying reporting and invoicing rules. As an example, a recent study of the youth care sector concluded that one third of the annual budgets went to covering the costs of administration and coordination at municipalities and providers.

As a consequence, provision of these services has become unattractive. In a recent poll among Dutch providers of long-term care only 15% of respondents believe that the tariffs cover their costs and one third state that they will stop or reduce the provision of services to municipalities. In several cases domiciliary care contracts are taken over by specialized companies, often with links to cleaning companies, that can provide the services at a lower cost. In other cases, such as youth care this is less likely. A potential solution is to move the responsibility for these services back to the central government. This would certainly reduce admin-related costs and would also lead to standardized services, tariffs, and tariff structures.

Specialized clinics sign collective labor agreement

The Dutch specialized clinics are organized in the trade association ZKN.ZKN has recently agreed a collective labor agreement for the six thousand employees in the sector. The employees will get a collective salary increase of 2% retrospectively to 1 January 2021.

Personnel-related costs are a large part of the cost-base of a specialized clinic, so a relatively modest increase in salaries should be good news for the sector

Consolidation in pathology / diagnostics sector

Last week it was announced that the Tergooi hospital (located 40 kilometers east of Amsterdam) will “transfer” its pathology / diagnostics department to the OLVG hospital in Amsterdam. The reasons given for the “transfer” is the need for more scale to deal with increased specialization and digitalization of processes.

Pathology and diagnostics services in the Dutch market are still very fragmented with each hospital tending to have its own facilities and organization. The fragmentation of the sector was highlighted in the first Covid-19 wave in the spring when it was exceedingly difficult and time-consuming to ramp up testing capabilities.

International interest in the sector has started with the entrance of Unilabs through the acquisition of Saltro. Will the ongoing corona-crisis lead to further consolidation in the sector? Who will lead the consolidation?