Lower house adopts profit distribution proposal

The legislator believes that the possibility of profit distribution may carry potential risks. The pursuit of profit may result in policies that could have a negative impact on quality. To minimize this risk the distribution of profits will be allowed on certain conditions only. The previous 2013 proposal already provided for the conditions listed below:

• Besides its regular supervision the Health Inspectorate should carry out a once-only quality test by way of additional assurance.
• Profit distribution is allowed only if following distribution the solvency margin of the healthcare provider is still at least 20%.
• Operating results must have been positive for three successive years.
• For the first three years after the date of investment no profit may be distributed and the healthcare provider may not apply to the Health Inspectorate for the quality test referred to earlier until three years have expired;
• The Supervisory Board of the healthcare provider has an advisory right in profit distribution decisions.

The new proposal includes several additional conditions:

• Additional rules may be laid down by general order in council, regarding the maximum decrease in solvency further to profit distribution. The Lower House eels a sudden strong fall in solvency may have a major negative impact on the rganisation. A minimum of 20% solvency could be inadequate, therefore.
• In addition to the above quality test by the Health Inspectorate the Dutch ealthcare  Authority will make a prior test mandatory of continuity of care upply. The key point to be tested is whether in preparing the profit distribution the healthcare provider has duly considered the risks and consequences. The povider must explain how it complies with the conditions for profit distribution nd the effects of the pursuit of profit.
• In the first year in which profit distribution is allowed it may not exceed 50% of the profit (this appears to refer to all profits cumulated until then). In subsequent years profits may be distributed in full, provided that all other conditions are met.
• At most half of the regulatory body to be heard about the intention to distribute profit may consist of shareholders and persons representing the shareholders.
  Shareholders may never make up the majority of the regulatory body.
• Based on the idea that investors could be interested in (just) the real estate      portfolios of care institutions, the supervision of real estate transactions will be maintained by the Dutch Healthcare Authority. Moreover, the scope of supervision will be extended to include all legal acts involving real estate (such as rental, sale or creation of mortgage rights) regardless whether or not the institution will no longer use that real estate permanently. In other words: every real estate transaction of an institution accredited under the Care Institutions (Accreditation) Act will require the Dutch Healthcare Authority's approval!

On a final note: The legislative proposal has been renamed and is now called 'Act Increasing the Investment Possibilities in Specialist Medical Care'. The Upper House is expected to take the proposal under consideration this autumn.

For more information, please contact Willemien Bischot or Dimitri van Hoewijk.