Background

The Minister had refused to register a commercial diagnostic clinic as a healthcare institution in the Netherlands because of its intention to generate profit, which is prohibited for this type of institution under Article 5 of the WTZi.

The healthcare provider argued that this statutory prohibition on profit distribution violates the freedom of establishment and the free movement of capital, as enshrined in article 49 and article 63 TFEU. The Council of State sided with the provider, ruling that the Minister’s enforcement of the ban was inconsistent and incoherent, in violation of European law. 

Ban on profit distribution

In summary, the profit block applies to intramural healthcare providers, providing care funded via the Zvw and the Wlz. This includes specialist medical care (as provided by hospitals and private clinics), as well as intramural/inpatient Wlz care with accommodation (inpatient mental healthcare and inpatient institutions for disabled and/or elderly care). The prohibition does not apply to extramural care (such as home care institutions, pharmaceutical services, general practitioner care, maternity care, etc.).

European law

According to established case law of the Court of Justice of the European Union (CJEU), restrictions on the freedom of establishment and the free movement of capital (such as the profit block) must be necessary, appropriate, and proportionate. This requires, at a minimum, that national authorities – in this case the CIBG as the executive body of the Ministry of VWS, under the responsibility of the Minister of VWS – apply such restrictions in a coherent and consistent manner.

Judgement

The Council of State ruled that the distinction between intramural and extramural care is understandable, as hospital-based care is often more complex than care provided outside of hospitals. At the same time, the Council of State also notes that the profit block does not apply when a medical specialist works as a self-employed person within the hospital. According to the Council of State, our highest administrative court, the Minister failed to clarify how and why the private-law relationship between hospital and specialist is relevant to the complexity, quality, or accessibility of healthcare – factors which could constitute compelling reasons of general interest that justify a restriction of the freedoms of establishment and capital.

According to the Council of State the fact that the current policy has evolved this way historically, is not sufficient. In consideration 13, the Council of State concluded that the Minister does not apply the profit block in a coherent and consistent manner, rendering the contested decision incompatible with article 49 TFEU. The Council of State referred to the judgment of the Court of Justice of 10 March 2009, ECLI:EU:C:2009:141, paragraph 63, in which the CJEU held that a lack of coherence and consistency undermines the suitability of a measure to achieve its intended objective.

Implications for the profit block and pending legislative proposal (Wibz)

How should the Dutch legislator approach profit in healthcare, within the boundaries of European law?

The ruling underscores the importance of European freedoms in a national context. The Minister must ensure a clear, fair, and consistent approach to the profit block.

It is questionable whether such consistency exists as long as the current distinction between intramural and extramural healthcare providers remains in place – as is still intended in the latest version of the pending legislative proposal on Sound Business Conduct for Care and Youth Aid Providers (Wet integere bedrijfsvoering zorg- en jeugdhulpaanbieders, Wibz). This is particularly pressing given that the explanation that “the current policy has evolved historically” is insufficient as justification, according to the Council of State in consideration 12 of the recent ruling.

Perspective of Loyens & Loeff

In light of the above, the ruling has implications that go beyond this individual case. It reveals that the profit block, in absence of a deliberate policy choice, has evolved into an incoherent practice that appears to be reaching the end of its lifecycle.

We previously concluded that it would be logical to (1) eliminate the arbitrary distinction between intramural and extramural care in relation to profit distribution, (2) abandon the statutory ban on profit-making for intramural care providers (also to prevent unnecessarily artificial subcontracting arrangements), and (3) regulate profit distribution exclusively in sub-sectors where excesses occur, provided that the conditions introduced for such sub-sectors are necessary and demonstrably proportionate.

In our view, this ruling should serve as a catalyst for the modernisation of healthcare legislation: moving away from a blunt ban, towards a nuanced supervisory regime that promotes investment in healthcare and safeguards public interests.  

Contact

If you have any questions regarding the ruling and legislations discussed in this blog,  please feel free to reach out to your usual contact in our Life Sciences & Healthcare team or to us directly.