Comment: Thinking beyond the budget

Chris Wilkinson of Siemens Financial Services talks about the balancing act public hospitals face between reducing costs, saving money, and investing in state-of-the-art medical technology and equipment

Asset financing packages are helping healthcare providers to keep up to date with the latest developments in medical technology

By Chris Wilkinson, head of sales for healthcare and public sector at Siemens Financial Services in the UK

Public healthcare in the UK has often been praised for its accessibility, safety and effectiveness. However, as the sector is facing a severe funding challenge, NHS hospitals find it increasingly difficult to maintain standards of care while, at the same time, balancing the books.

Currently, NHS hospitals are regularly overspending as they struggle to cope with the threefold challenge of growing demand for care, shortage of staff, and substantial budget restrictions

The NHS is under fierce pressure to implement measures to realise cost savings, particularly as it is expected that the National Health Service will face a £30billion funding gap by 2020. Currently, NHS hospitals are regularly overspending as they struggle to cope with the threefold challenge of growing demand for care, shortage of staff, and substantial budget restrictions. The fact that around 80% of all hospitals are now in deficit clearly demonstrates a need for public hospitals to rethink their financing strategies in order to cope with present-day issues.

Against this background, it may seem counter-intuitive to suggest that hospitals acquire state-of-the-art medical technology.

Investing in new equipment can, however, help the sector achieve necessary savings while continuing to ensure high levels of preventative diagnosis (reducing overall costs) and patient care.

Technological innovations can contribute to reducing costs while delivering high-quality outputs and reducing waste. For instance, technological advances have reduced magnetic resonance imaging (MRI) scan times by up to 75% since the millennium, meaning improved patient throughput rates.

These efficiency gains contribute towards reducing the costs per procedure and enable hospitals to realise overall savings on staff time. New diagnostic imaging software helps increase productivity by reducing radiologists’ reading time by 50%. Additionally, its enhanced detection sensitivity leads to more-accurate diagnosis. This not only facilitates cost reductions for healthcare providers as they save approximately £8 per use, but also improves patient quality of life as illnesses can be detected at an earlier stage when treatment is often simpler, more effective and less invasive.

In short, using the latest equipment often results in more patients being diagnosed and treated faster and better. This, in return, leads to better clinical outcomes and a more-efficient cost-per-treatment, and therefore frees resources for use in other areas such as meeting increased staffing requirements.

Asset financing techniques, such as leasing, are emerging as increasingly-popular investment enablers, as payment profiles can be based on an understanding of expected throughput rates and ultimately translated into a cost per patient and/or cost per scan insights

The acquisition of up-to-date medical technology can be a costly undertaking and the relatively-limited availability of traditional sources of funding has made equipment acquisitions and upgrades more and more unattainable for many public healthcare providers. Against this backdrop asset financing techniques, such as leasing, are emerging as increasingly-popular investment enablers, as payment profiles can be based on an understanding of expected throughput rates and ultimately translated into a cost per patient and/or cost per scan insights. This allows public healthcare providers to manage costs more closely, accurately and effectively. By spreading the cost of equipment over its useful lifetime, healthcare organisations can gain immediate access to the latest technology without a large initial capital outlay while keeping their lines of credit intact.

Asset finance packages can also bundle equipment and modest installation costs into a fixed payment for the financing period, thereby providing a reliable and transparent financing method which helps to manage the financial outlay and avoid hidden cost escalation. Moreover, financing arrangements can include the option to upgrade to newer, more-efficient medical equipment, enabling healthcare providers to harness technological advances to improve patient outcomes. Such tailored financing packages tend to be offered by specialist financiers who have an indepth understanding of medical technology and its applications. They are, therefore, able to create customised financing packages that fit the specific requirements of a hospital and the use of the technology in situ – for instance, taking into account the need for the financing facility to be NHS compliant.

These advantages benefited an NHS hospital in Scotland when it decided to upgrade its existing MRI scanner, financing the upgrade cost of around £300,000 with an operating lease.

With the public health sector in the UK facing serious budgetary challenges, flexible and affordable financing solutions may just be the remedy to ease the pain for UK hospitals that are trying to meet their budgets

Since the pre-existing equipment was being leased, the hospital needed a renewed financing facility which would enabling off-balance-sheet treatment. When structuring the financial arrangement, a number of factors had to be taken into consideration. The lease on the existing equipment needed to be extended to allow for building work and potential changes in project dates. In addition, the downtime during the upgrade, which inevitably affected patient throughput during a short period, needed to be factored in. The solution, an integrated package encompassing both technology and financing from one single source, was structured in close collaboration between the hospital, the in-house finance team and the financier. The operating lease helped meet the hospital’s initial financial and accounting concerns and made the upgrade process time-efficient and convenient.

Examples like these clearly demonstrate why asset finance techniques are gaining popularity as cost-effective investment-enablers among public hospitals. With the public health sector in the UK facing serious budgetary challenges, flexible and affordable financing solutions may just be the remedy to ease the pain for UK hospitals that are trying to meet their budgets, as well as ever-growing requirements for improved, efficient healthcare for their patients.

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