Keeping pace with technological advancements requires considerable capital expenditure. It is becoming essential for hospitals to seek new and sustainable ways of investing in new technology. Chris Wilkinson reports.
The UK public healthcare sector is experiencing serious pressure to reduce spending. The Government previously announced that public health budgets will be reduced by a further £200m as part of a programme to bring down public debt.1 The NHS has already implemented a number of changes to make savings and improve productivity. The resulting cuts make it increasingly difficult for NHS hospitals to provide the quality of care needed in order to cater for a growing and increasingly ageing society. Official figures released in May 2016 showed that ambulance Trusts, hospitals and other healthcare services in England had a record deficit of £2.45bn in 2015/16.2
Against this background, increasing investment in medical technology and equipment may not seem like sound advice for NHS Trusts. The expected cost of equipment, maintenance and replacement technology may discourage potential investment. Austerity measures have, however, already resulted in the continued use of ageing diagnostic imaging equipment across the EU.3 The long-term costs of using out-dated equipment for patient diagnosis and treatment can often outweigh the shortterm expense of its replacement or upgrade. This is because deferring investment in technology can directly impact productivity and quality of care.
Additionally, the gains in efficiency and productivity that can be achieved through the use of modern technology may well more than compensate for the costs of the investment overall. In the long run, new equipment and technology can even help public healthcare providers reduce costs associated with diagnosing and treating patients. With the use of state-of-the-art medical equipment hospitals can significantly optimise processes; reduce patients’ length of stay and cut down overall surgery duration. Costs for personnel and material usage, as a result, decrease. Patients, moreover, benefit from less invasive therapies, quicker healing and higher overall chances of recovery.4 Public healthcare providers are therefore looking for financially viable ways to invest in modern equipment in order to realise the benefits of its use.
Flexible asset financing methods can help leverage the benefits related to the use of state-of-the-art medical technology and make the acquisition more affordable for public healthcare providers. Solutions such as leasing funding allow for equipment costs to be spread over an agreed period. Financing payments can be arranged to align with the expected benefits of its use, such as enhanced operational efficiency, more accurate diagnosis (and treatment) and improved patient care. This removes the need for a large initial outlay, thereby improving cash flow and working capital.
Asset finance can thus give public healthcare institutions access to the latest technologies, while assisting with long-term financial planning and improving standards of care. Increasingly, in some technology categories it is no longer sensible to write down an equipment investment over longer periods (for example, ten years) as significant advances in technology are expected to drive shorter upgrade cycles. This demands hospitals to have a more flexible approach to planning and investment than more traditional ways of equipment acquisition hospitals in order to avoid having to shoulder the costs of equipment long after it has become outdated.
Using innovative medical technology helps public healthcare organisations expand the breadth and scale of their capabilities. Advanced equipment enables medical professionals to generate results faster and with greater accuracy, ultimately contributing to improved patient throughput. Consequently, healthcare finance professionals regard newgeneration technology as critical in supporting the progression of their healthcare institution.5 Shortening diagnostic procedures through state-of-the-art equipment and automated processes, as well as improving the accuracy of results, has become essential for healthcare systems as demand rises.6
Against this background, the increased digitalisation of healthcare technology provides important solutions to increase the efficiency and quality of care. For instance, integrated technology makes it possible to combine measurement data from computed tomography (CT) and magnetic resonance (MR) scans to be automatically translated into personalised prosthetic devices for knees, hips, shoulders, or other joints. This opens the door to automated production of custom-made prosthetics.7 The new technology promises to sharply reduce surgical planning time for the replacement of diseased joints while improving the accuracy of associated manufacturing processes.8
Additionally, new diagnostic imaging software shortens radiologists’ reading time by 50% and increases the sensitivity of rib fracture detection by 10%. This leads to faster, more accurate analysis and results in estimated savings of approximately $12 per use.9 With the move to value-based reimbursement models and the growing importance of population health management and preventative medicine, digitalised technologies become an ever more important enabler of change.
Keeping pace with these and other technological advancements requires considerable capital expenditure. It is becoming essential, therefore, for hospital CFOs to seek new and sustainable ways of investing in new technology. It can be difficult to justify and prioritise the acquisition of upgraded technology at a time when frontline services are under increasing pressure and hospital finance managers need to cut costs. Asset finance techniques are seen as particularly important to healthcare organisations’ ability to modernise.10 This is reflected in the overall take-up rate of asset finance in global medical equipment sales, which has grown annually by an average of nearly 7% over the past two years.11 It is clear that such financing solutions are gaining popularity as a cost-effective investment-enabler.
Asset finance arrangements can also incorporate other costs such as installation and upgrades in line with technology developments. They thus offer improved cost transparency and understanding of the Total Cost of Ownership (TCO) of the equipment. This, in return, improves financial planning and forecasting for public healthcare institutions. Such financing packages tend to be offered by specialist healthcare financiers, like Siemens Financial Services (SFS), who have an in-depth understanding of the technology and its applications. They are therefore more capable of creating customised offers that fit the specific requirements of a healthcare establishment – for instance, flexing the financing period to suit the organisation’s cash flow. This contrasts with the standard financing terms usually available from generalist financiers. Specialist financiers are usually also able to accommodate for the specific budgetary requirements of NHS Trusts to help them acquire state-of-the-art equipment with bespoke financing solutions.
For example, SFS helped Echotech, the largest provider of community-based echocardiography services in the UK, to acquire and upgrade ultrasound equipment. The organisation delivers over 40,000 scans per year for the public sector. Echotech has always prided itself on the provision of a high quality service underpinned by the use of the very latest technologies. Having established itself as a leading provider of echocardiography services for the NHS, the Portsmouth-based company was commissioned by the Ministry of Defence (MoD) to provide cardiac screening services across several army recruitment centres.
The MoD had found that the service helped considerably in streamlining the recruitment process and wanted the onsite echocardiography screening programme to be mobilised within just a few months across four other military training locations scattered around the UK. To fulfil the request,Echotech needed urgent financing for the acquisition of four additional echo machines within a very short time scale.
As a result of the company’s existing relationship with SFS, Echotech sought support from the specialist financial services provider. With a five-year finance lease worth approximately £100,000, SFS was able to help Echotech acquire the equipment and secure the contract. The arrangement also included the flexibility to accommodate potential future equipment upgrades. Echotech places a lot of emphasis on using the latest technologies, so leasing offers a valuable financing solution as it allows equipment upgrades without trapping capital in out-of-date assets – especially important since the fast pace of technological change means that equipment can become obsolete after just a few years. As a rapidly growing organisation in an expanding market, Echotech has been able to widen cardiac screening services and make great progress because of the financial agility it gains through its relationship with SFS.12
Another healthcare organisations in the NHS can use leasing to facilitate equipment acquisition is a hospital in the Anglia region. The hospital needed to focus on delivering a challenging cost savings programme while maintaining and improving the quality of patient are delivered. Recognising that its old analogue mammography machines were outdated, the hospital decided to acquire three static and one mobile Mammomat Inspiration Full Field Digital Mammography systems from Siemens Healthcare after a competitive tendering. To finance the significant investment, the hospital opted for a lease provided by SFS in a separate competitive tender.
As part of the project the hospital was also able to transform its old processing room, which was no longer needed, into a third mammography room. This helped it manage the rising demand for diagnostic facilities for more women as the Government extended the screening age from within three years of a woman’s 50th birthday to within three years of her 47th. With lease financing from SFS, the hospital has been able to master the challenge of driving cost savings while maintaining its superior healthcare standard through the transition to digital radiography.
These examples illustrate that there are ways for healthcare providers to continue delivering the best possible quality of care without placing an undue burden on finances. With budget cuts becoming more severe, hospitals and healthcare providers can benefit from flexible asset financing solutions that remove the need to tie up precious capital in equipment and technology acquisition. Both public and private healthcare providers are under pressure to develop a viable strategy for improving the quality of care. Against the background of limited financial resources, such alternative financing solutions can help to address this challenge. By investing in equipment upgrades and advanced technologies hospitals can enhance their capabilities and provide better, more efficient and more accurate treatment.
1 Caroline Price, ‘Government announces £200m cuts to public health budget’, http://www.pulsetoday.co.uk/ (5 June 2015)
2 https://improvement.nhs.uk/news-alerts/ nhs-providers-working-hard-still-underpressure/
3 COCIR, ‘Medical Imaging Equipment: Age Profile and Density’, http://cocir.org/ (2014)
4 Spectaris, ‘Fokus Innovative Medizintechnik 2014‘, http://www.spectaris.de/uploads/tx_ewscontent_ pi1/Studie-Einsparpotenzial-2014_01.pdf
5 SFS, Taking the Pulse (2016) https://finance.siemens.com/financialservices/ cn/en/press/documents/siemensfinancial_services_taking_the_pulse.pdf
6 SFS, Rising to the Challenge (August 2014), https://finance.siemens.com/financialservices/ global/en/press/studies/documents/whitepaper_ 2014_rising-to-the-challenge.pdf
7 SFS, Seizing the Digitalization Opportunity (June 2015)
10 SFS, Taking the Pulse (2016) https://finance.siemens.com/financialservices/ cn/en/press/documents/siemens-financial_ services_taking_the_pulse.pdf
11 SFS, Rising to the Challenge (August 2014). https://finance.siemens.com/financialservices/ global/en/press/studies/documents/ whitepaper_2014_rising-to-the-challenge.pdf
12 http://finance.siemens.com/financialservices/ uk/markets/healthcare/documents-downloads/ documents/cof_echotech_case_study_.pdf
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