New research shows: Alternative financing tools rapidly improve efficiency
A new report from Siemens Financial Services has identified €2.1bn of capital currently ‘frozen’ (inefficiently deployed or untapped liquidity potential that could be freed up) in the NHS – an increase of 17% compared to 2005. The frozen capital is the result of insufficient use of asset finance to acquire medical equipment for healthcare institutions. Freeing the frozen capital by making use of alternative asset-financing techniques, such as leasing and rental, could release much needed liquidity to implement other efficiency initiatives and, ultimately, help improve patient care.
Access to flexible capital is critical to the provision of healthcare technology and equipment. The UK has been warned by the International Monetary Fund that reform is crucial to address the country’s overall budget deficit. The introduction of the Health Act 2009 on 12 November has given further impetus to NHS reform, placing particular emphasis on: assuring quality accounts; direct payments for healthcare; a regime for unsustainable NHS providers; and new powers to de-authorise Foundation Trusts. Therefore healthcare management is now keenly looking for ways of making the budgets work harder. One area coming under scrutiny is how to make the acquisition of capital equipment more efficient and effective, as any limitation on the ability to invest in the latest medical equipment and technology has a large influence over the achievement of health system efficiency and patient care improvements.
Siemens Financial Services looks into healthcare financing in the UK and Europe and how healthcare systems are not making the most efficient use of available financing tools. This is the latest in a reporting series which began in 2006 and tracks relative trends in the major European economies. The total annual capital expenditure that is frozen in the UK healthcare system has risen by 17% from €1.8bn to €2.1bn, though lower than the two other large economies of Western Europe, Germany (€4bn) and France (€2.6bn). In Europe as a whole this has grown from €10.3bn in 2005 to €11.9bn in 2009 – a 15% increase. A significant proportion of this capital could be freed up if asset-financing techniques such as leasing and rental were more widely employed. This year, for the first time, the report also looked into health systems financing in Scandinavia as well as in rapidly developing economies. Interestingly, almost €3.7bn of capital is frozen in China, over €580m in Poland and around €134m in Turkey – an enormous proportion compared to the investments in medical equipment in each country. These figures are likely to rise rapidly with the expected fast-growing health expenditure, unless asset finance solutions are more widely used for equipment acquisition.
David Martin, General Manager, Public Sector, Siemens Financial Services, comments: “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 straight away, 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.”