Comment: Equipped for the future?
Chris Wilkinson of Siemens Financial Services on why asset finance is playing a greater role in helping the NHS to achieve best value following the healthcare reforms
In this article, CHRIS WILKINSON, head of sales for public sector/healthcare at Siemens Financial Services, looks at how asset finance is playing a greater role in achieving Best Value in the NHS, following recent structural changes and efficiency pressures.
2014 marks the 15th anniversary of the introduction of Best Value and its principles in the National Health Service (NHS). We are now, however, witnessing the NHS in very different circumstances than the scene back in 1999. Then, budgets were growing. Now, the system is feeling the severe strain of being asked to do more, with the same resources.
Everyone is aware of the 2015 Nicolson target of £20billion in ‘efficiency savings’ (doing more with the same resources) and, as we fast approach the deadline, it is apparent that there is ground to make up.
One key factor in the flexibility of trusts to rapidly expand a particular service, is access to appropriate technology – and technology access is dependent on access to capital
NHS England is reported to be behind on efficiency savings, and a survey of NHS finance directors last year by the Kings Fund predicts that overall trusts will not meet the 2015 targets.
Even as the strain is telling on the health service in the short term, few are remembering that 2015 will then be followed by a stretch target of £50billion in efficiency savings by 2020.
Even as the pressures for financial efficiency mount, the recent structural changes to the NHS are creating other anxieties on acute trusts. Clinical Commissioning Groups (CCGs) are now responsible for planning buying services for their patient community. This makes the impact of ‘funds following the patient’ a much clearer and more present concern for acute trust planners and financial managers. Even while the operating cost squeeze is on, trusts need to maintain standards of excellence and be in a position to offer the latest technological capabilities in order to keep a high commissioning level from the CCGs, who will be concerned to offer their patients the best available level of healthcare.
The ability of patients and their general practitioners (GPs) to make an objective choice about where, and by whom, the patient will be best treated, has been further enhanced by an initiative from the Royal College of Surgeons which resulted in 3,500 surgeons publishing the outcomes of their operations.
CCGs may choose to commission only selected services from their local acute trust, reducing demand in some areas, and undermining a trust’s ability to offer (affordably) a full range of general hospital services. By the same token, excellence in a particular field may drive up demand for services from a particular trust and put pressure on it to extend its capabilities in those areas. This kind of ‘internal market’ is the very planning antithesis of the old NHS, where acute trusts would be allocated funds based on predicted demand for services in their catchment area.
One key factor in the flexibility of trusts to rapidly expand a particular service, is access to appropriate technology – and technology access is dependent on access to capital. Even in the public sector, access to capital is not unlimited. Prudential borrowing limits are imposed annually, and may present trusts with a financial cap on expansion, even if demand is soaring. Moreover, there appears to be a backlog of technological under-investment in the NHS, with many trusts deferring equipment upgrades in the struggle to meet efficiency targets. Yet outdated equipment could undermine the service standards and positive health outcomes that a hospital can deliver, with the risk that under the new commissioning structure GPs choose to send their patients elsewhere.
According to research recently commissioned by Siemens Financial Services (SFS), healthcare organisations in the UK will have to invest close to £300m between 2013 and 2015 to replace diagnostic imaging equipment ‘in urgent need of replacement’ (defined by the relevant EU working group as over 10 years old). According to a Commons public accounts committee report from 2011, half of the MRI and CT scanners and linear accelerators in the NHS in England were due to be replaced by the end of 2014 at a cost of £460m.
There appears to be a backlog of technological under-investment in the NHS, with many trusts deferring equipment upgrades in the struggle to meet efficiency targets
The necessity of having access to up-to-date diagnostic imaging equipment is all the more obvious considering that the use of these technologies has extended beyond the main domain of diagnosis to other less-traditional areas of the patient care continuum, including prevention and therapy. This development brings additional challenges, particularly in the patient pathway, where having the most up-to-date equipment and management systems is vital for the patient experience and treatment success. Fulfilling the increasing expectation in this context will put a further strain on available resources and add to the financial burden that many trusts are already facing.
This brings us to our first reference to the first principle of Best Value, namely to ‘secure economic, efficient and effective services continuously (the ‘3 Es’)’. In this respect, many healthcare organisations have come to the conclusion that buying equipment outright is not the most-effective way of providing healthcare services. This view has been the result of increasing sophistication in the calculation of ‘total cost of ownership’, or TCO, which recognises that the simple purchase cost is only a part of the cost of running a piece of equipment. TCO embraces the well-attested fact that service costs rise and reliability falls as technology ages. Latterly, energy efficiency has been factored in for high-consumption equipment. In fact, in healthcare, the TCO calculation is even more complex, taking into account factors such as patient radiation dosage, avoidance of costly invasive surgery, Quality, Innovation, Productivity and Prevention (QIPP) standards, and now patient recruitment (via CCGs) opportunity costs of non-investment.
Asset finance and leasing seems increasingly to be regarded as the way of accessing capital to acquire the latest technology, which in turn improves patient outcomes, potentially increases patient throughput rates, drives down the overall cost per patient, avoids more-costly procedures, embraces TCO, avoids technological obsolescence and frees liquidity for immediate frontline needs.
This is not just the opinion of the finance or technology industries – it is backed by independent fact based research. One has to look no further than the relevant NHS Supply Chain webpage that succinctly lays out the benefits of leasing. Its exact words are: “At the end of the lease, the leasing company will take the asset back with no disposal costs. If you need to upgrade or replace the equipment, you can simply make an adjustment to your regular payment rather than invest a lump sum upfront, dependent upon interest rates. You do not have to pay the full cost of the asset up front.
“Leasing allows you to have the best-quality products on the market. You have access to a higher standard of equipment which might be too expensive to buy outright. You pay for the asset over the fixed period of time that you use it and the leasing company can usually get better deals on price and will have indepth product knowledge.”
Outdated equipment could undermine the service standards and positive health outcomes that a hospital can deliver, with the risk that under the new commissioning structure GPs choose to send their patients elsewhere
An increasing emphasis on longer-term planning in procurement is also apparent in the new NHS. For instance, the Department of Health initiative NHS Procurement: Raising our Game, published in May 2012, was publicly welcomed by NHS Supply Chain, particularly because one of its aims is to facilitate multi-year procurement agreements, thereby taking a longer-term view of strategic technology investments, as well as allowing NHS Supply Chain to better leverage volume demand on behalf of its constituents.
To sum up, the NHS is being financially pressured to deliver more outputs without a commensurate increase in more resources, even while its new structural changes are imposing potential new volatility resulting from the CCGs’ freedom to commission services anywhere. The possible penalty for not offering top-quality services through non-investment in technology, have therefore just been ratcheted up. Moreover, this is against a background where trusts that have deferred technology investments as they struggle with efficiency targets, risk falling into the technological obsolescence trap and, as a result, see procedures being commissioned elsewhere.
All this seems to have encouraged an increasing range of trusts to turn to asset finance and leasing to acquire up-to-date medical technology under the key first principle of Best Value. Interestingly, asset finance and leasing is the preferred option of their private healthcare counterparts, who have no other alternative but to invest their capital in the most-efficient way possible. Moreover, the system is structured to be totally transparent in that the lease finance is tendered separately from the technology tender. It is hard to see therefore why the NHS’s uptake of lease finance will not grow still further.
