The document from Siemens Financial Services, a follow-up to an earlier study in 2006, claims that in the UK alone the equivalent of £1.8 billion of capital is being inefficiently deployed or untapped – an increase of 17% since 2005.

 

And this comes at a time when it is predicted the cost of necessary developments to the healthcare infrastructure across Europe will reach some €4 trillion over the next 20 years, making all available capital vital.

 

“There are significant economies and efficiencies to be gained by refining the delivery structure and supply chain in European healthcare ”

The report, entitled Frozen Capital in Healthcare: An Update, states: “These spending projections put into context how much the public services in general, and healthcare in particular, are under pressure to identify and use the most-efficient and effective methods to finance these developments. Certainly, it is already evident that the development of Europe’s healthcare systems cannot be funded solely from public coffers.

 

“There are significant economies and efficiencies to be gained by refining the delivery structure and supply chain in European healthcare – moving from an input-focused management structure to an output-driven one¹. Underpinning this will be a radical reform of financial management and the supply chains within healthcare systems.”

 

One of the key ways to address the issue, the report claims, is to change the way healthcare equipment and technology is funded.

 

 

It states: “Although capital spending on medical devices only occupies about 1/20 of total healthcare budgets², the impact of the latest healthcare technology on efficiency and effectiveness is disproportionately positive. For instance, MRI scans have been reduced by up to 75% as a result of technological advances achieved since the new millennium began³, not to mention the improvements to diagnostic imaging⁴. In other words, the latest technology and equipment allows more patients to be diagnosed and treated faster and better. This often leads to improved clinical outcomes, combined with a more-efficient cost-per-treatment ratio.

 

However, by funding such equipment from capital budgets, available cash for infrastructure improvements is reduced and the overall pressure on budgets leaves little leeway for technology improvements and upgrades.

 

The report states: “As patient/physician choice increases and as payment for healthcare provision is calculated at the individual patient level, the pressure to improve treatment efficiency using the latest technology mounts. If a healthcare service provider, public or private, is to create a demonstrable centre of excellence that will attract additional patient volumes then it has to find an affordable method of acquiring up-to-date technology and this comes at a price.”

 

One solution the document highlights is increased use of alternative asset-financing techniques such as leasing and rental. It adds: “Within business environments, economists have for many years advocated ownership of appreciating assets [those which increase in value over time] and the rental or leasing of depreciating ones [those which lose money as they age].

 

 

“Technology tends to advance in sudden leaps and in some examples can be enhanced or upgraded within 12-18 months. Healthcare organisations that find themselves owning previous-generation equipment which they have decided to write down over, say, 10 years, will find it difficult to attract patients in a health system that fosters internal competition – a key trend in the overall reform of global healthcare.

 

“Financing techniques that enable a health institution to upgrade to a superior technology at certain points are therefore gaining in popularity. But for these techniques to be effective and to offer good value, financiers need to understand technology development paths and also have the channels through which the older equipment can be remarketed at a reliable and predictable residual value.”

 

One country which has already followed this route is China, where in 2009 the leasing market grew by around 20%. And in Poland, leasing as a tool for growth is considered so important to the economy that the European Bank for Reconstruction and Development recently made a substantial loan to the largest SME leasing company in order to provide it with liquidity in today’s tight economic climate.

 

“Leasing and rental are important financing tools which help healthcare systems afford the most up-to-date equipment and medical technology, as well as rapidly improving efficiency”

In summary, David Martin, general manager (public sector) at Siemens Financial Services, said: “The importance of freeing up frozen capital is becoming increasingly urgent in Western Europe. There now appears to be growing political support in some quarters to introduce not just capping measures, but real-terms spending reductions, if not straightaway, at least in the next few years. In some countries, accelerating deficits are forcing this view on government.

 

“Leasing and rental are important financing tools which help healthcare systems afford the most up-to-date equipment and medical technology, as well as rapidly improving efficiency. Technology tends to advance in sudden leaps and in some examples can be enhanced or upgraded within 12-18 months.”

 

 

REFERENCES

¹ Reform, 1 Jan 2006, The Empire Strikes Back, Professor Nick Bosanquet et al

² Data sources for estimates include: OECD, WHOI, National Accounts, Espicom, Forrester, Frost & Sullivan

³ Siemens Medical, MAGENTOM literature

⁴ A.G Sorensen, Advancements in MRI Scanner Technology Lead to Improved Functional Imaging, Electromedica 68