Hospitals don't have enough money to invest in affordable care

Hospitals need to make investments to solve problems in healthcare and keep it affordable. But they have no money for that, accounting firm BDO concluded in its yearly analysis of over 60 Dutch hospitals’ annual reports. If hospitals want to remain future-proof, they’ll have to make investments that would put them in the red, the accounting firm said, NRC reports.

Hospitals’ revenues decreased by over 8 percent last year - 329 million euros in 2022, compared to 359 million euros in 2021. BDO isn’t concerned about that yet. “It could be worse,” Eelke-Jan Jongsma, partner at BDO, told the newspaper.

What concerns the accounting firm is hospitals’ return. The margins have become so thin that hospitals keep less than 2 euros of every 100 euros they receive. “Profitability is not a goal in itself for a hospital because they are not organizations that pursue profit. But returns are necessary for investments. And they are desperately needed now.”

The average return of Dutch hospitals fell from 1.9 percent in 2021 to 1.6 percent last year, with some smaller hospitals even approaching the critical lower limit of 1 percent. “If you fall below that, you cannot invest at all and cannot tolerate any headwind.”

The Integral Healthcare Agreement made between the Ministry of Public Health, health insurers, and healthcare organizations last year includes promises to invest in digitization and automation to work more efficiently. For example, using robots to administer medication and remote care via video calling and apps to reduce healthcare workers’ workload. Hospitals also need to invest in sustainability. That is impossible right now, BDO said.

Rising costs are the main cause of hospitals' low returns. “Rising costs do not have to be a problem for hospitals, provided they are compensated in rates from health insurers,” Jongsma told the newspaper. But that didn’t happen last year, partly because the high inflation was unexpected. Next year, hospitals will face even higher costs - the new collective bargaining agreement for healthcare includes a 15 percent wage increase in three steps. “Insurers are not going to fully compensate for this, as the premium will then be much too high.”

The government made 2.8 billion euros in “transformation funds” available to healthcare parties to finance investments for the necessary changes in healthcare. That is not enough, according to BDO. The accounting firm suggests that hospitals, banks, and insurers jointly look at additional financing. For example, hospitals can tap into buffers, insurers can make temporary investments with reserves or premiums, and banks can be more flexible with loan requirements.

That entails risks because hospitals already have few buffers due to thin margins, and insurers have been dipping into reserves for years to limit premium increases. However, BDO still thinks it is a better alternative to the current situation where hospitals are expected to invest with non-existing revenues. “It may lead to temporary losses, but you will earn that back. Because investments in digitalization and automation must ultimately be cost-saving,” Jongsma said.