MORE than £2billion worth of capital is ‘frozen’ in the UK healthcare system as trusts fail to utilise innovative financing techniques to procure the latest medical equipment, a new report reveals.
“with capital budgets squeezed, greater use needs to be made of financing techniques that enabletechnology to be affordable through monthly payments, rather than spending scarce capital”
The study by the financial services division of Siemens (SFS), a leading MedTech manufacturer, shows that wider adoption of asset financing techniques such as leasing and managed service agreements could save trusts millions at a time when capital investment is being severely cut. It will also mean that providers can keep up with their rivals by ensuring they can offer patients access to the very latest technologies, another crucial consideration as the Government increases choice and competition in the NHS.
The SFS report analyses the problem across the main equipment categories – diagnostic imaging; medical furniture; and other equipment, such as endoscopy, anaesthesia, dialysis and surgery technologies.
David Martin, general manager for SFS in the UK, said: “NHS spending as a whole has been ring-fenced, yet capital spending is to fall by 17% between 2010/11 and 2014/15, with £1billion re-allocated to social care, and more than £20billion of efficiency savings to be achieved. However, those same efficiency savings are often dependent on having access to the latest technology to improve diagnostic throughput and accuracy rates, as well as minimising the need for expensive and invasive surgical interventions. So, with capital budgets squeezed, greater use needs to be made of financing techniques that enable such technology to be affordable through monthly payments, rather than spending scarce capital.”
The report puts the amount said to be ‘frozen’ in the system at around £33 per person in the UK.
“Asset finance is a key tool, not only for making capital investments more affordable, but offering built-in affordable upgrade options across the life of the agreement”
Commenting on the impact of improved asset financing, Martin said: “Asset finance is a key tool, not only for making capital investments more affordable by spreading the cost across regular monthly payments, or for providing finance secured on the asset which might not be available through standard loans, but also offering built-in affordable upgrade options across the life of the agreement.
“Financing techniques that enable a health institution to upgrade to a superiortechnology at certain points are gaining in popularity. But, for these techniques to be effective, and to offer good value, financiers need to understandtechnology development paths, and also have the channels through which to remarket the older equipment at a reliable and predictable residual value.
“Forward-thinking healthcare organisations are using asset finance arrangements to overcome the affordability obstacle. Hereby, large amounts of capital are not tied-up or ‘frozen’ through up-front purchase. Regular monthly payments align with the actual efficiency gains that such equipment helps deliver. Such arrangements can also accommodate technology upgrades and avoid technology ‘lock-in’.”
“Financiers need to understand technology development paths, and also have the channels through which to remarket the older equipment at a reliable and predictable residual value”
Organisations looking at improving their procurement systems through asset financing should choose an option that will:
- Charge a fixed equipment lease/rental and maintenance cost against revenue budgets
- Reduce longer-term outlay because the financier retains the title and can dispose of the technology on secondary markets
- Introduce the possibility of upgrades in line with market developments without having to write down the full capital purchase cost
- Calculate the lease cost based on the difference between the capital cost and residual risk taken by the lessor, plus interest. Whereas, if the trust buys the equipment outright, they pay the full value and have responsibility for disposing the equipment when it is obsolete or has no value
Martin said: “The result is a much more transparent and accurate visibility for healthcare managers of the true cost of the asset over time. By correlating the asset finance costs with patient throughput volumes, a cost-per-use can be calculated, all of which more closely reflects the trend away from global needs funding, and towards payment per treatment. Ultimately, this allows financial managers in the healthcare sector to make much more acute judgments about the affordability and cost benefits of each equipment acquisition or upgrade.”
“Currently, capital spending on medical devices occupies in the region of 5% of total healthcare budgets, but the influence on efficiency and effectiveness of the latest technology is disproportionately positive”
He added: “Currently, capital spending on medical devices occupies in the region of 5% of total healthcare budgets, but the influence on efficiency and effectiveness of the latesttechnology is disproportionately positive. For instance, MRI scan times have reduced by up to 75% with technological advances since the millennium, not to mention the improvements in diagnostic imaging. In other words, the latest technology and equipment often allows more patients to be diagnosed and treated faster and better.This often leads to better clinical outcomes, combined with a more-efficient cost-per-treatment.
“Asset finance techniques, including leasing, are therefore likely to gain further traction in the UK in order to afford technology upgrades that enable the healthcare system’s hardwired drive towards greater efficiencies.”
Unlike PFI deals, which have left NHS trusts with huge revenue costs over periods of up to 30 years, asset financing methods for medical equipment are typically over three to seven years and are performance based.
Currently, the most-popular type of financing method for NHS trusts is operating leases, for which NHS Supply Chain has introduced a framework agreement.
“Acquiring such up-to-date equipment through asset finance plans provides healthcare finance professionals with a transparent means to calculate cost-per-procedure and, armed with this knowledge, ensure that those costs are well understood and managed”
The SFS report concludes: “There is a large body of proof that shows access to the latest medical technology is crucial to improving diagnostic accuracy, treatment throughput, the avoidance of unnecessary interventions, and consequently the cost of healthcare provision. Acquiring such up-to-date equipment through asset finance plans provides healthcare finance professionals with a transparent means to calculate cost-per-procedure and, armed with this knowledge, ensure that those costs are well understood and managed.
“Inefficient use of capital, which can freeze that capital and exclude its use elsewhere in the healthcare system, is now widely regarded as anathema by healthcare finance professionals and asset finance techniques are increasingly recognised and utilised as a powerful means of freeing up frozen capital.”
