Financial malaise threatens healthcare transformation

The financial performance of general hospitals reached a low point in 2023. This is the finding of accounting firm BDO in its annual analysis of financial statements. Structural problems such as declining operating efficiencies, staff shortages and increasing investment arrears continue. This also endangers the transformation of the sector, as laid down in the Integral Care Agreement (IZA).

Almost half (46 percent) of the 60 hospitals surveyed are achieving results below the "critical threshold" of 1 percent, BDO notes. This is almost a doubling compared to 2022. On average, the results margin fell from 1.51 percent to 1.27 percent. As a result of the declining results, the number of hospitals writing red figures quadrupled from two to eight.

Energy costs skyrocket

The cost of non-salaried personnel (PNIL) remains unchanged: 6.2 percent of total personnel costs in 2023 compared to 5.9 percent in 2022. Maintenance and energy costs "skyrocketed" by 44 percent last year to €518 million. Together with rising patient-related costs, they are the main cause of the increase in other operating costs. Because of the financial distress, investments in real estate are increasingly getting shelved. The real estate aging ratio fell further to 46.6 percent, a tenth lower than in 2022.

Points of Light

There are bright spots, too. Liquidity - expressed in months of sales - rose slightly over 2023 to 1.08. This was down from 1.02 in 2022. Still, hospitals across the board scored lower than the liquidity guideline used by banks of about two months of turnover as a buffer. Hospitals' solvency, or their buffer to absorb any losses, increases by almost one point from 33.3 percent to 34.2 percent in 2023. Hospitals benefit particularly from lower interest rates. The balance of interest expense and income decreased by 13.3 million to 162.4 million in 2023. In 2022, it was 175.7 million euros; a decrease of 7.6 percent. In addition, total personnel costs as a percentage of total revenues remain the same in 2023 thanks to higher rates and growing production. Nevertheless, these are substantial at nearly 60 percent.

Transformation task

These positive notes cannot obscure the fact that hospitals face a fundamental problem. For the transformation of the healthcare sector to succeed, sustainable improvement in results and investments are needed. Under the current funding model, this mainly means running more production. This is exactly the opposite of what the Integral Care Agreement (IZA) aims for, namely the right care in the right place. That right place is often not the expensive hospital, but is close to the citizen's home. Hospitals that actively participate in this transition are digging their own financial grave by seeing fewer patients and thus getting paid less. "The current financing of care does not align well with the transformation task at hand," BDO observes. "As a hospital gets better at delivering appropriate care, its financial results are increasingly eroded."

Safety net

"Transformation to appropriate care must be financially rewarding," believes Vincent Eversdijk, chairman of BDO's Healthcare Sector Group. The accounting firm makes several recommendations for this. For example, hospitals should be able to keep result improvements, within the agreements made by the IZA. BDO also advocates a safety net during the transformation period. This safety net prevents unnecessary complex discussions with health insurers and banks about, for example, special management.

Regional investment agenda

In addition, there should be better coordination between investment plans at the regional level. A regional investment agenda promotes cross-sector cooperation, information sharing and optimal use of available capacity. This requires strategic portfolio choices at the level of individual hospitals.

Missed opportunity

Digitalization must be used more effectively as far as BDO is concerned. "Digitalization is still too often implemented without reviewing the underlying (administrative) care processes," the accounting firm observes. "This is a missed opportunity."
Redesigning care processes reduces the administrative burden and improves capacity management. In doing so, it not only strengthens the business case for digitization initiatives, but also the overall bottom line.

Counterproductive

Digitization additionally lacks an efficient, nationwide approach. A center of excellence can accelerate implementation and improve quality. BDO welcomes the government's acceleration of initiatives around data availability and the deployment of AI. But broad policy consistency is needed for the transformation of healthcare to succeed: "Cuts in research and education, as well as in prevention and healthcare, are counterproductive in this regard and actually increase the pressure on the Dutch healthcare system."