Portfolio obtains unrefusable offer made by Hungarian government

Gergely Gulyás, minister in charge of the Prime Minister's Office, told journalists on Thursday about the negotiations with the suppliers of hospitals and the government that  

the Finance Ministry has one-on-one talks with the suppliers and we hope it will make an offer that will be difficult to refuse.

That certain offer

László Rásky, secretary general of the Association of Medical Devices Manufacturers (AMDM), told Portfolio that the Finance Ministry is inviting the representatives of companies with at least HUF 100 million overdue receivables. The government's negotiating team is headed by Gábor Gion, state secretary in charge of finances, and officials of tax authority NAV, the Ministry of Interior, and the National Healthcare Services Centre also attend the discussions. The companies are received in 30-minute slots and are not given any offer in writing at this point. The talks will continue next week, and this is what we know so far:

• If the creditor agrees to waive 20% of the debt it is owed, the state budget will immediately pay the remaining 80% of the receivables.
• The Finance Ministry argues that they looked at the financial status of the affected companies in the last five years, and found that giving up 20% of the receivables would not cause them a problem.
• It was also said that the cabinet is preparing to introduce a centralised supply system in health care. 
• The companies have already factored their receivables to the tune of billions of forints and the cabinet's negotiating committee was faced with this fact only at the current talks. 

When asked how the compoanies could react to such an offer, Rásky did not wish to take guesses. He underlined, however, that the association thinks these are rightful claims and the companies are owed the principal debt, the interest on the arrears and the lump sum on the recovery of the debt. 

The association is of the view that surrendering 20% of the income is an unrealistic demand

, stressed Rásky who said the companies are not subject to coercion. They are not bound to accept any offer made on the spot, either. 

He thinks that the invoices behind the receivables have not been audited one by one and the offer to waive 20% of the outstanding payments appears to be just a shot in the dark. 

How to proceed?

When asked about the potential outcomes, the secretary general replied that according to their best knowledge, the negotiating delegation wants to conclude the consultations by the middle of February. So, if the original schedule remains in effect, the suppliers should not expect to receive their overdue payments until at least March. This is quite a predicament for them, because we're talking about debts originating in 2019, while hospitals are slamming the brakes hard and are reluctant to pay their debts this year either. 

And that's a huge problem because the cabinet has not even engaged in talks with the smaller companies (i.e. that are owed less than HUF 100 million). These are mostly in Hungarian ownership and there is no sign the government has any intention to pay what they are owed. As a consequence, some of these local businesses might not survive until March. Some say the cabinet has walked out on small Hungarian businesses again.

When asked how much the 20% would mean nominally, Rásky told Portfolio that the entire medical devices market is about HUF 90-100 billion annually, and if 20% of this is not paid to the suppliers, the cabinet will effectively "save" less than 2% of the full health care budget of HUF 1,300 billion.

If the suppliers reject the "unrefusable" offer of the 20% "levy" (and the remaining 80% will be paid directly from state coffers, rather than via the hospitals in debt) the debts would fall back into the lap of hospitals and queue up again waiting for the hospitals to pay them. 

We have also inquired about the negotiations at the Finance Ministry and we will update this article as soon as we get a response. 

What about debt factoring?

It is crucial information (and it turned out only during the talks) that some of the suppliers resorted to debt factoring, i.e. they sold their unpaid customer invoices (accounts receivable) to debt factoring providers that will chase payment from the customer, i.e. the hospitals. There have been rumours on the market already that the factors are beginning to reach the limit of collecting receivables from certain hospitals, i.e. the collections have started to slow down and stop. 

The factors warned the businesses that they have no jurisdiction in conducting negotiations about the factored debts. The negotiating committee, however, has no competence over these items. 

Once the government's delegation has learned about the debt factoring, it recommended the businesses to sell their accounts receivable. Rásky says that theoretically this could be a solution for the suppliers, provided their business models offer that much wiggle room and the debt factoring providers have such large capacities. 

We have recently published a detailed analysis on hospital debts and why the cabinet has decided to tighten the screws right now.

And here are some other stories about hospital debt:

Cover photo: Gergely Gulyás, minister in charge of the Prime Minister's Office and government spokeswoman Alexandra Szentkirályi at a 'government info' press conference on 30 January 2020. Source: MTI/Noémi Bruzák