The German Healthcare Development Act (Gesundheitsversorgungsweiterentwicklungsgesetz) was promulgated in the Federal Law Gazette on 19 July 2021. An important component of this Act is the so-called 2021 Nursing Care Reform: With the new provisions, the legislator is aiming to improve the situation in nursing care through higher wages and staff increases; overall, the profession is to become more attractive. According to Federal Health Minister Jens Spahn, the effect of the nursing care reform should also be to relieve the burden on those in need of care and their families.
However, the new provisions are also particularly relevant in the case of planned acquisitions of nursing facilities, as these could adversely affect the profitability of the facility. Dr. Enno Burk (Counsel) and Dr. Julia Hornung (Associate) from the Healthcare and Life Sciences practice group in Berlin explain the two cornerstones of the 2021 Nursing Care Reform that are relevant in this context: the applicability of collective bargaining agreements and the introduction of a uniform staffing ratio for in-patient facilities throughout Germany.
Compulsory wages according to or in line with the agreed pay-scale in the nursing care sector
As of 1 September 2022, only nursing facilities that pay their nursing and care staff according to or in line with collective bargaining agreements the may be licensed to provide care (section 72(3a) and (3b) German Social Security Code, Book XI). This means that nursing care insurance funds may only conclude healthcare agreements (Versorgungsvertrag) with facilities
- that pay their employees who provide nursing or care services to persons in need of nursing care a wage that has been agreed in collective bargaining agreements or provisions of church labour law that are binding on the respective nursing facilities, or
- that pay wages at least in line with collective bargaining provisions or church labour law, if they are not bound by such agreements or law. If several different collective bargaining agreements or church labour law provisions are applicable, the nursing facility can choose on which collectively agreed provision it bases its employees’ wages.
The obligation to pay wages in accordance with the agreed pay-scale applies to both existing healthcare agreements and new agreements.
Amendment of right to terminate healthcare agreements
Correspondingly, the German Healthcare Development Act has added a new category to the right to terminate healthcare agreements laid down in section 74(1), sentence 1 German Social Security Code, Book XI: Nursing care insurance funds can now also terminate the healthcare agreement with the nursing facility if, from 1 September 2022 onwards, the latter does not pay its nursing staff in accordance to or in line with collective bargaining agreements.
No refusal to pay salaries in line with the agreed pay-scale because this is uneconomical
In the case of nursing facilities that are bound by collective bargaining agreements or the provisions of church labour law, the nursing care insurance funds cannot refuse the payment of employees’ salaries up to the amount specified on the basis of these binding provisions by claiming that these are uneconomical (see new section 82c(1) and (2) German Social Security Code, Book XI).
The same applies to nursing facilities that are not bound by collective bargaining agreements: The payment of wages that are – as specified in section 72(3b) German Social Security Code, Book XI – in line with collective bargaining agreements or church labour law cannot be rejected as being uneconomical.
This applies as long as the wage level customary in the region is not significantly exceeded. This level is deemed to be significantly exceeded if the wages are more than 10% higher than the average wage according to collective bargaining agreements and provisions of church labour law that are applied in the region where the nursing facility is located.
Introduction of a uniform national staffing ratio for in-patient nursing facilities
The second cornerstone of the 2021 Nursing Care Reform is a uniform national staffing ratio, which will be introduced with section 113c German Social Security Code, Book XI and will apply from 1 July 2023.
- The maximum staffing level of the in-patient facility is derived from the staffing levels specified in section 113c(1) German Social Security Code, Book XI for the various staff groups, taking into account the level of care required by the persons in need of nursing care in the facility concerned.
- As from 1 July 2023, minimum staffing requirements are also to be bindingly agreed at the level of the Federal States in the framework agreements pursuant to section 75(1) German Social Security Code, Book XI (section 113c(5), no. 1 German Social Security Code, Book XI).
- If the facility falls short of the minimum staffing level, it is possible that the nursing remuneration may be reduced, and in serious cases the healthcare agreement may be terminated (section 115(3) in conjunction with (3a) German Social Security Code, Book XI).
Consequences of the 2021 Nursing Care Reform for M&A practice: Checking the profitability of the facility
- As a result of the new statutory provisions of the German Healthcare Development Act, interested buyers must assume that the costs for employed nursing staff may increase significantly from 1 September 2022 for nursing facilities that were previously not bound by collective bargaining agreements or church labour law.
- There is no alternative to pay according to or in line with the collective bargaining agreements if the nursing facility to be acquired is to continue to provide care for those insured under the statutory nursing care insurance scheme. This is likely to be the rule, since about 90% of those in need of nursing care are members of the statutory nursing care insurance scheme.
- The nursing remuneration laid down in the nursing charges agreements can be renegotiated with the nursing care insurance funds with reference to the rising staff costs. The increased staff costs should not be rejected as uneconomical. However, the Act does not provide for nursing staff costs to be financed on the basis of actual cost, so the possibility cannot be ruled out that increased salaries will not be fully compensated for by the renegotiated and increased nursing remuneration.
- Potential buyers must also bear in mind that – depending on the previously applicable requirements for staffing in the Federal State Framework Agreements (Rahmenvertrag) as well as the individual nursing charges agreements (Pflegesatzvereinbarung) – the new statutory provisions may have an impact on the minimum staffing levels to be maintained by a nursing facility, which could mean that the number of staff would have to be increased. This may also result in additional costs from 1 July 2023 onwards.
- The new statutory provisions could therefore adversely affect the profitability of a facility that is to be acquired. Accordingly, the effects of the German Healthcare Development Act should be taken into account if the acquisition of a nursing facility is planned.
- Within the scope of due diligence reviews, special attention must be paid to the current remuneration level of the nursing staff and the required adjustment of this in line with the pay-scale customary in the region as well as the existing numbers of nursing staff per personnel group.
- Conversely, the rising costs are likely to force small or medium-sized nursing homes in particular to face the question of whether they should enter into strategic partnerships with financially strong investors. This could make it possible for nursing home chains or investors to enter the market on more favourable terms than before due to the less favourable legal framework. This is because the demand for nursing services will continue to rise – irrespective of the staff costs.
- In this respect, the 2021 Nursing Care Reform is likely to be a further step towards consolidation of the nursing care sector, bringing it closer in structural terms to the hospital market, which has been dominated for some time by companies with strong market positions.
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