Sound Operational Practices in Care and Youth Services Bill

The bill for the Sound Operational Practices (Care and Youth Services Providers) Act (wetsvoorstel Wet integere bedrijfsvoering zorg- en jeugdhulpaanbieders, the Sound Operational Practices Bill) was submitted to the Dutch House of Representatives on 29 January 2025. This bill amends the Healthcare (Market Regulation) Act (Wet marktordening gezondheidszorg) in particular and aims to eliminate undesirable practices in the operations of care and youth services providers by setting standards for risks identified by the Dutch government. In addition, the bill strengthens the external supervision of sound operational practices by the Dutch Healthcare Authority (Nederlandse Zorgautoriteit, the NZa).

Contents of the Sound Operational Practices Bill

The Sound Operational Practices Bill covers the following subjects:

1. Profit distribution standards:

• the prohibition on profit distributions in the care sector will be included in the Healthcare (Market Regulation) Act instead of the Care Institutions (Accreditation) Act (Wet toelating zorginstellingen) and will be tightened; and
• new conditions will be introduced for profit distributions made by care and youth services providers that are allowed to distribute profits.

 
2. Care and youth services providers must not take any irresponsible risks when raising or repaying own funds or loan capital.

 3. A new standard will be introduced requiring the use of normal arm's length conditions for significant transactions with related parties, including real estate transactions.

 4. The supervision of real estate transactions in the care sector will be modernised. The bill eliminates the review of care institutions' real estate sales by the Board for the Restructuring of Care Institutions (College sanering zorginstellingen). Under the new standard, the NZa will supervise compliance with normal conditions in real estate transactions.

 5. Additional grounds for refusal or withdrawal will be attached to authorisations under the Care Providers (Accreditation) Act (Wet toetreding zorgaanbieders). This bill makes it possible to refuse or withdraw an authorisation on the sole ground of the identity of a specific director, supervisory board member or other person exercising control. This could be based, for example, on a past violation of permit conditions, without the person in question being linked to the possible impact on the quality of care. In addition, more conditions in terms of operational management will be attached to the authorisation; authorisation can then be refused or withdrawn for inadequate record keeping, for example.

This News Update will further explore the implications of the first three standards for care providers (youth services providers will be disregarded). It should be noted that the government intends to apply these standards to care providers that provide care that is insured under the Healthcare Insurance Act (Zorgverzekeringswet) or the Long-Term Care Act (Wet langdurige zorg). An exception will apply to care providers that exclusively provide care not funded from collective resources, for example care covered by additional insurance (under Article 2(2) of the Healthcare (Market Regulation) Act).

Profit distributions (Article 40e of the Healthcare (Market Regulation) Act)

Prohibition on profit distributions

Care providers cannot distribute any profits unless they only provide types of care designated by general administrative order. The government intends to align this general administrative order with the scope of the current prohibition on profit distributions under the Care Institutions (Accreditation) Act as much as possible. For example, family doctors, physiotherapists and dentists will be exempt from the current prohibition on profit distributions. The same applies to care providers that only provide care as subcontractors. The government is working to gain more insight into the arrangements with subcontractors. For example, with effect from the financial year 2024, care providers that only provide care as subcontractors have also been required to publish an annual report. As additional insight is gained, the government will further assess the future need and proportionality of a prohibition for subcontractors on distributing profits.

Regulation of profit distributions

First of all, the concept of 'profit distribution' will be expanded to include disguised profit distributions. These include, for example, 'excessive' payments for goods or services provided, or the surplus value on bought back shares. Every distribution or payment (whether in cash or in kind) is considered a profit distribution, unless any of the six exhaustively listed exceptions apply. There is no profit distribution only in the event of:

• non-excessive payments for goods or services provided to a care provider. A payment is excessive if the amount is not based on economic rationality;
• payments ensuing from an employment or apprenticeship agreement or a traineeship;
• debt repayments;
• returns of capital actually contributed;
• provisions of goods or services by a care provider in exchange for a more than symbolic payment;
• provisions of goods or services by a care provider to another care provider that is not allowed to distribute profits, or provisions of goods or services with a social or idealistic objective for no consideration or for a symbolic payment.

A new requirement is that care providers that are allowed to distribute profits must observe certain legal standards. Care providers that are subject to the standards can only distribute profits if:

• the Health and Youth Care Inspectorate (Inspectie Gezondheidszorg en Jeugd) has not imposed any measure to improve certain elements in the quality of care;
• the NZa has not imposed any measure due to pricing offences or violations of transparency provisions;
• results were published no more than two years ago of an independent survey of clients' views on the services recently provided by the care provider in question, along with the survey method used;
• the management board and internal supervisory board have explicitly approved the profit distribution;
• it is reasonably foreseeable that the profit distribution will not adversely affect the quality and continuity of the care to be provided;
• the care provider is in a good financial situation in the sense that it will be able to continue paying its due and payable debts and providing proper care after making the profit distribution. Specific requirements apply in the form of four financial ratios/percentages: EBITDA or EBITDAR margin, profitability, current ratio and buffer capital.
  
  

Raising or repaying capital (Article 40d of the Healthcare (Market Regulation) Act)

In view of the public interests to be served by care providers, they are expected not to take any irresponsible risks when raising or repaying own funds or loan capital. Risks are irresponsible if at the time of taking the decision it is reasonably foreseeable that they will or could jeopardise the organisation's continuity or the quality of the care to be provided. One example would be taking out a high loan without considering a foreseeable drop in revenues and without having sufficient financial reserves. Irresponsible risk-taking only applies to risks that are reasonably foreseeable and that are irresponsible in view of operations. In addition, care providers must take normal operational fluctuations into account. No obligations are imposed regarding the methods to be used by care providers to demonstrate their compliance with this requirement or regarding when a risk analysis qualifies as sound. This will depend on the specific situation as well as on what is customary in respect of a particular governance structure, a particular type of transaction or the size of the organisation.

Normal arm's length conditions (Article 40c of the Healthcare (Market Regulation) Act)

If a care provider enters into a significant transaction in which a member of the day-to-day or general management or the internal supervisory board has a personal interest, it is up to the care provider to convincingly show that the transaction is entered into under normal arm's length conditions. The word 'significant' was deliberately included in order not to burden care providers with a requirement to render account for every single transaction, no matter how small. The bill does not explain what counts as a 'significant transaction', which means that care providers will have to use their own discretion, under the NZa's supervision. 'Normal conditions' are conditions under which a reasonable care provider and an independent party would enter into a transaction. How care providers are to demonstrate this is not laid down in the bill and will depend on the type of transaction. An independent valuation seems the obvious choice for real estate purchases or sales. When services are outsourced, one or more quotes could be requested from market participants comparable to the related party.

As the bill is yet to be debated in the Dutch House of Representatives and the Dutch Senate, it is still subject to change. Of course, we will closely follow the developments. If you have any questions about the bill or this News Update, please contact Paul de Vries, Marleen van Uchelen or Thomas de Rave.