Healthcare in the Netherlands is highly regulated. Continuous political and legislative developments make it imperative for healthcare institutions to stay up-to-date. These developments are also relevant for (private equity) investors in Dutch healthcare institutions. Recently introduced legislation limits the freedom to design the governance structure at Dutch healthcare institutions. This may have consequences for the intended governance structure a (private equity) investor envisages to implement at these healthcare institutions.
Compliant articles of association
An important development in this context is the introduction of the Wet toetreding zorgaanbieders (Wtza) per 1 January 2022. The Wtza and the related executive order Uitvoeringsbesluit Wtza (UB Wtza) have replaced the admission system for healthcare institutions in the Netherlands that provide insured care, as formerly laid down in the Wet Toelating Zorginstellingen (WTZi). This new legislation, amongst others, provides for further requirements for the governance structure of healthcare institutions, which are to be reflected in the articles of association of healthcare institutions.
In our daily practice we observe that the articles of association of healthcare institutions are often not yet compliant with these new legal requirements. It is advised that each (investor in a) healthcare institution have the articles of association of the healthcare institution being checked for compliance with the new rules. Following the introduction of the new legislation, also the composition, term of appointment and shareholdings of members of the supervisory body require attention.
Healthcare governance requirements
Entities with a Wtza-license (necessary for the provision of insured care) are required to have a dual management structure, which means that there needs to be a separation between daily management and a supervisory body which oversees daily management of the institution. The Wtza contains various (partly new) requirements on the composition of the supervisory body, of which the following particularly stand out:
- the independency requirements (e.g., exclusion of (the appearance of) financial, personal or family conflicts of interest of the internal supervisor with (the daily or general management of) the institution);
- the profile requirements (which also apply to members nominated by the client counsel and/or works council);
- the size of the supervisory body (at least three persons, to ensure that discussions can be held from different perspectives and backgrounds); and
- the term (a member of the supervisory body may only be appointed up to two terms of four years each (i.e., hold office up to eight years in total)).
These (partly new) requirements have an effect on the possibilities to appoint members of the supervisory body who are in a certain manner connected to the (indirect) shareholder of the institution. When Private Equity invests in a portfolio company, it is fairly common that representatives (i.e. directors, employees) of the Private Equity investor, are appointed member of the supervisory body of the portfolio company. This might be a point of attention since this is not allowed at the level of the Wtza licensed healthcare institution.
Ban on shareholding for members of supervisory board
The UB Wtza contains detailed provisions to ensure that the internal supervisors will be fully independent while performing their task. Members of the supervisory body may for instance not receive any remuneration, other than appropriate for the work performed as a member of the supervisory body. Although many of the requirements that Section 7 UB Wtza imposes on members of the supervisory body were already applicable under the WTZi, one of the most striking changes is the fact that a member of the internal supervisory body that supervises the Wtza licensed entity, his/her spouse or other life companion, (foster) child, relative by blood or marriage up to the second degree, may no longer hold any shares in the healthcare institution, a subsidiary of the institution or any other entity affiliated with the institution, while such persons were previously permitted to hold a (shareholding) interest of up to 10%. In case of Private Equity investments, it is not unusual to allow members of the supervisory body to participate in the portfolio company by means of offering them the opportunity to buy shares. This might be a point of attention for Private Equity investors since this is also not permitted for members of the supervisory body of the Wtza licensed entity within the portfolio company.
These new statutory requirements with respect to an independent supervisory body to strengthen internal supervision, are intended to improve the quality and effectiveness of the healthcare services and aim to provide the Dutch Health and Youth Care Inspectorate (IGJ) with more tools under administrative law to enforce measures and hold healthcare institutions accountable.
Although profit distribution in the healthcare sector has long been a subject of public debate, the Wtza does not seem to affect the possibility (for subcontractors) to distribute profits as permitted under the WTZi. The Dutch government has announced however it is preparing legislation focusing on restricting “excessive profit distribution” in the healthcare sector, yet it is still unclear when such legislation can be expected and which limitations will be provided for. As of yet, no draft legislation has been made publicly available. How and to which extent profit distribution in the healthcare sector will be limited remains subject to further political debate. As a firm with a strong focus on serving clients in the healthcare sector, we are closely monitoring the debate and we will make sure to keep our clients updated on any material legal developments.