Update 8 January 2020

I hope that you have all enjoyed your vacations and have had a good start to the new decade. In this update we cover:

• Commercial provider of outpatient mental healthcare services is bankrupt. How attractive is the sector?
• New report for Dutch government suggests that nursing home capacity in the Netherlands must be doubled. Who will build the new capacity?
• Trend toward multi-year contracts between insurance companies and operators is continuing. Good news for everybody?

Bankruptcy of commercial provider of outpatient psychiatric care provider

AltraCura is a small provider of outpatient psychiatric care in the southern part of the Netherlands. The company was established by Annemie Heuvelmans in 2009 and specialized in providing outpatient care to low-IQ psychiatric patients. In 2018 the company had revenues of €5.2 million and made a loss of €0.6 million. 75% of the company’s revenues came from contracts with municipalities. The company worked with a total of 82 FTEs.

In December the company asked for bankruptcy protection. According to Ms. Heuvelmans the bankruptcy was caused by the mismatch between reduced tariffs from municipalities and increased salary costs for the highly educated staff needed to help this group of clients.  AltraCura has been acquired by the CONRISQ Groep, a combination of one of the largest traditional providers of psychiatric care and two organizations specializing in youth-care.

The overall long-term sector is attractive and there have been a couple of acquisitions of psychiatric care operators by foreign investors in the last few years (Orpea and Reseau Abilis). However, this case highlights the need to carefully understand and evaluate the business model of the potential acquisition as there are key differences in financing and cost structures.

Nursing home capacity in the Netherlands needs to be doubled

As highlighted in my previous update the number of people in the Netherlands on waiting lists for placement in a nursing home is growing rapidly. In response, the Minister of Health has commissioned a study by TNO (The Dutch Organization for Applied Science Research) with the goal of understanding the need for additional nursing home capacity.

The TNO study was published on 17 December and provides the following conclusions:

• · Nursing home capacity in the Netherlands will need to more than double in the period up to 2040 (from 119.000 now to more than 240.000 in 2040)
• · In addition, there will be a need to refurbish existing locations containing another 40.000 beds

The TNO analysis is based on detailed information from the Central Statistics Bureau and the regional care offices responsible for financing long-term care. Expected growth in the number of people requiring nursing home care has been specified per region. As there is limited information available of current capacity per region, TNO has not been able to specify the required growth in capacity per region, but this is seen as a required next step.

I am a bit surprised at the very large increase in required capacity suggested by the TNO report. Our analysis (In Dutch), which was carried out on the level of municipalities, suggested that 35.000 new beds will be required in the next ten years. However, both numbers are large, and it is good news for the sector that different parts of the government are beginning to understand the magnitude of the challenge.

Given the low profitability of the major incumbent players in the sector (see the latest White Paper from Verstegen Accounts and ourselves) it will be difficult for them to make the required investments. Will international operators fill the gap?

More multi-year contracts between insurance companies and operators

As mentioned in a previous update Buurtzorg closed an innovative multi-year contract with Menzis (one of the largest Dutch healthcare insurance companies) for its home-care services in 2018. In the current negotiation period Buurtzorg has closed multi-year contracts with two additional insurance companies (VGZ and Zilveren Kruis). The total value of the multi-year contracts is €800 million. In addition to covering the day-to-day business of Buurtzorg the multi-year contracts focus on the transfer of activities from hospitals and broader activities related to prevention.

In addition to Buurtzorg health-care insurance companies have also agreed multi-year contracts with a various hospitals and psychiatric care providers. The contracts typically include provisions about reducing volumes and/or moving activities to cheaper locations (outpatient clinics, homes).

This is an interesting development as it helps both operators and the insurance companies. For insurance companies it is an interesting way of controlling costs, while it gives operators financial security and the opportunity to invest in new technologies and services.