BDO Benchmark Hospitals: Hospital sector at tipping point

The financial performance of general hospitals has continued to deteriorate over the past year. "While the decline is understandable given the current phase in the transformation of healthcare, the lack of financial perspective for hospitals does threaten a proper transition to appropriate care," said Vincent Eversdijk, chairman of the Healthcare industry group at BDO Accountants & Advisors.

An increasing number of hospitals are experiencing financial problems. Eight hospitals were in the red last year. A year earlier, there were two. Almost half of the hospitals achieved a result of less than 1% of sales. This is another deterioration from previous years. Healthcare is at a tipping point: transformation to appropriate care requires an appropriate financial perspective. This is evident from the annual Benchmark Hospitals. In it, BDO reports on the financial situation of the Dutch hospital sector and ranks hospitals based on their financial performance over 2023.

In the Integral Care Agreement (IZA), signed in the fall of 2022 by parties from care, welfare and support, the transformation to appropriate care is the common thread. The starting point is to achieve the right care in the right place, together with the patient and with a focus on health. This is not a quick fix and the results will only become visible in the coming years. In the meantime, structural problems such as declining operating results, increasing investment arrears, outdated real estate, rising costs and the persistent staff shortage also persisted in 2023.

The average rating for the financial performance of general hospitals fell to a 5.5 in 2023. In 2022 it was still a 7.1. This is partly caused by the negative development of results at hospitals (-10% in 2023). In addition, the rating system was updated this year and the age of the real estate of hospitals (real estate age ratio) and the extent to which hospitals are able to repay debts are now included in the rating (financing leverage). For university medical centers (UMCs), the financial situation over 2023 is slightly less dire. The average report grade for UMCs dropped from a 7.6 to a 7.0. Unlike general hospitals, the result as a percentage of turnover, the profit margin, increased at university medical centers in 2023, partly due to incidental results. As a result of the changed rating system, the report grade still drops.

The movement toward appropriate care has now begun. All regions have arrived at a plan and are having a structural conversation about the demand for care and the supply of care in their region. "The implementation phase remains challenging. We must guard against excessive bureaucracy," Eversdijk stressed. The desired transformation will take at least another 10 to 15 years before it is fully realized, requiring time and patience from policymakers and patients. In the meantime, financial challenges continue to increase due to deteriorating results and mounting investment arrears. Eversdijk therefore insists on the need for a sustainable, appropriate financial perspective for hospitals and university medical centers. BDO makes five targeted recommendations:

1. Leave results improvement with the hospitals
Low results mean that (in-depth) investments needed for care transformation cannot be realized. The results have been declining for several years and are now approaching the lower limit that banks typically use. A sustainable increase in results is possible by organizing care smarter, innovating and increasing labor productivity where appropriate care is financially rewarding. It is essential that the improvements in results achieved, within the agreements made by the IZA, are retained by hospitals and UMCs. In this way, yield improvements can be realized without a negative impact on premiums and taxes.

2. Direction and cooperation among system partners is essential
Banks, health insurers, health care offices and regional health care providers each have different responsibilities and powers as system partners. But these parties also need each other to make the transformation in care possible. For example, by jointly discussing the risks of investments with these partners and making clear agreements, there will be better coordination between the investment plans and the regional plans from the IZA. This increases support and limits risks to an acceptable level. There will also be a safety net, preventing unnecessary, complex discussions with banks and health insurers and delays in implementation.   

3. Increasing impact digitalization and automation.
Invest in digitization and automation to provide appropriate care and reduce staff shortages. The impact of these investments can be enhanced by also overhauling the underlying care processes. These types of initiatives are now taking place across the country. For greater impact, work toward a national approach that accelerates implementation and improves quality. Many initiatives focus on care processes, but the back office (finance, HR, care administration) also offers opportunities for optimization and overhead reduction.

4. Focus and strategic choices
The healthcare landscape is changing, requiring hospitals and UMCs to reconsider their roles and make strategic choices within the frameworks of the regional plans, among other things. Making portfolio choices is crucial, both from a strategic perspective (what fits the profile of the hospital or UMCs) and from a healthcare perspective (quality and volume standards).

5. Retaining staff through modern employment practices
Place emphasis on staff retention. The focus is still too often on the costs and financial risks of non-payroll (PNIL) staff rather than on developing strategic HR policies and modern employer practices that encourage employees to remain in hospitals.

Among other things, BDO identifies consistent government policies and a reduction in the administrative burden as preconditions for achieving the transformation to appropriate care without unacceptable financial and operational risks. "Cuts in research, education and prevention actually increase the pressure on the Dutch healthcare system," says Eversdijk. Financing care is also an obstacle. "The current funding of care does not fit well with the transformation task at hand. Hospitals need financial stability, and here lies an important role for the Ministry of Health, Welfare and Sport, the NZa and health insurers."