Health care institutions get a financial blow from corona

In 2019, health care institutions were financially healthy on average, but the corona crisis threatens to change that.

That is what EY provides in the annual Dutch Healthcare Barometer, based on the annual reports of 453 healthcare institutions, some 85 percent of the entire sector.

The Barometer focuses on the period before corona, but at the same time the consultancy firm looks further ahead. According to EY, the corona crisis will have a major financial impact this year and next. EY estimates the decline in turnover for healthcare in 2020 at 3 percent and for 2021 at 9.5 percent, given the great uncertainty.

More personnel costs

Corona is increasing staff costs by providing extra care for patients, dropping out of staff due to illness and hiring externally more expensive staff. At the same time, there are lost revenues due to the postponement or adjustment of care and treatments, and less space due to the other half-meter economy.

The high rate of absenteeism due to illness, now already more than 6 percent (a record) and the screaming shortage of care personnel is and remains a cause for concern. This is a consequence of the ageing population (there is more demand for care) and greening (less supply of care workers). Rising personnel costs are partly met by lower capital costs due to low interest rates and lower investments.

2019 good year

Healthcare institutions were in good shape in 2019, concludes EY in the Barometer. Hospitals did score slightly worse financially and operationally, and nursing homes, mental health institutions and youth care did slightly better; on balance, funding is good. Returns are somewhat under pressure, but all care sectors recorded sufficient creditworthiness over last year.

Moreover, the solvency, the equity position, of many health care institutions has increased and thus meets the current standards. The average financial return of healthcare institutions in 2019 will be slightly lower than in the previous year, from 1.55% to 1.46%. The return has been around 1.5 percent on average for years. However, this is too low to absorb the impact of corona.

Buffer quickly empty

Fewer incomes and higher current expenditure due to the coronavirus quickly empty the wallets of health care institutions. Healthcare institutions usually have a liquidity buffer for current expenditure of 2 to 3 months’ personnel costs. “That buffer in itself is sufficient, nothing more is really needed, but the corona quickly empties that buffer, so that there is no longer any possibility of absorbing shocks,” says Ralph Poulssen of EY.

Hospitals have been hit hard by corona, but are almost entirely compensated for the loss of turnover through special arrangements. This reimbursement scheme does not apply to psychiatry, for example, and for youth care it depends on the local municipality.

Financially healthy institutions will survive corona, EY thinks. Institutions that were not financially healthy before corona are at risk, Poulssen thinks. “The Ministry of Health, Welfare and Sport and the Minister have said that the sector must be kept afloat, but on an individual level banks can of course take advantage of this situation to clean up the less healthy institutions,” says Poulssen. “We do not rule out the possibility that perhaps five institutions will be taken over after all, fall apart and care will be continued elsewhere