Hospitals and other medical
organisations are becoming ever more reliant on health care finance
in the wake of swingeing cuts to budgets and capital shortages. But
are leasing companies taking advantage of the opportunity? Claire
Hack goes behind the scenes on Europe’s leading health care lessors
in a unique analysis of this burgeoning marketplace.
More and more health care providers are turning to alternative
financing across Europe as the economic crisis continues to affect
their cash flow, Leasing Life research has revealed.
With more cutbacks expected – especially in
the UK with the arrival of a new government – lessors have said
they expect to continue writing significant volumes of business
with hospitals and health services.
In Germany, VR Leasing subsidiary VR Medico is
actively touting the benefits of asset finance over other forms of
finance or outright purchase and presented the findings of its own
research at the German Radiology Conference in May.
In the Scandinavian region, Nordea says demand
is increasing – particularly in the public sector – as hospitals
and other health services seek to keep costs down while staying on
the cutting edge of technology.
Elsewhere in Europe, the picture is the same,
as GE Capital’s Andrea Minciarelli attests, with the health care
segment showing strength despite the economic downturn.
According to Richard Blunden, managing
director of asset management company equigroup, life expectancy for
major items of medical equipment can vary from institution to
institution depending on a number of factors.
After clinical demand for the latest
technology, chief among these is the need for flexibility –
allowing health care providers to have an “ordered and regular
In turn, by granting access to the very newest
equipment, leasing can also attract both patients and top health
care and surgical talent, Blunden said.
The last decade has also seen rapid changes in
technology as the digital age continues and large pieces of
equipment such as CT and MRI scanners become increasingly
Where asset life expectancy is defined,
turning to leasing rather than outright purchase can save hospitals
up to 20% over usage life and minimises residual value risk, said
Environmental risks can also be minimised as
disposal can be outsourced and equipment can sometimes extend
beyond initial user expectations, he added.
Across Europe, asset values have remained
steady, most lessors say, and companies are therefore able to
remarket much of the equipment at the end of lease terms.
De Lage Landen
Dutch lessor De Lage Landen (DLL) provides
vendor finance programmes in health care across the US and Canada,
Asia, Australia and throughout Europe.
Steve Riggs, president of the global business,
said: “Demand is very strong – in the last three years, our
European business has tripled.”
DLL divides its health care business into
three main headings – treatment and related equipment, speciality
care (dental, veterinary, ophthalmology) and life sciences.
Riggs added: “We’ve been very impressed with
the growth we’ve had throughout Europe. Looking at each country,
our four strongest countries are the UK, Italy, Germany and France.
We’ve done well elsewhere but those four are the standouts.”
He attributed this success to DLL’s staff,
saying they had developed businesses unique to each country.
However, he added demand was also increasing
in Europe as life expectancy continues to rise.
Riggs said: “In most of the western European
countries, the fastest-growing age group is 65 and older.”
As the population ages, health problems
associated with old age increase as does the need for hospitals –
and therefore leasing, as a cost effective way to maintain
up-to-date equipment according to Riggs.
He said: “Over the next 15 years, we expect
health care finance to be very strong as all the different
governments feel the same pressure to contain costs amid a greater
demand for care. That’s going to continue to increase opportunities
and we need to develop expertise in each country to understand
Swingeing public sector cutbacks are also
going to have an effect, he said, and health care providers will
need to look to alternative methods of funding.
However, DLL’s business is not dependent on
the public sector according to Riggs, with a 60/40 split in favour
of private care in terms of volume.
He said: “In Europe, we’re constantly
evaluating trends and how that affects our strategy. There’s been a
bit of movement as governments change policies and it moves a bit
more towards the private sector.”
DLL offers 36-, 40- and 60-month terms to its
clients, with an average of 40 months.
The average deal size is about €50,000 to
€60,000, although a number of deals rise above €1m, Riggs said.
Nordea serves the Nordic and Baltic regions,
including Poland, working typically with large, government-owned
It works with some private hospitals, although
this is not a big part of the business, according to Nordea Finance
CEO Jukka Salonen.
Salonen said: “For hospitals, we’re talking
about x-rays and analysing equipment – it’s upper medium
Deal sizes can range from several hundred
thousand into millions of euros and Nordea also offers a product
called Asset Master, in co-operation with Australian lessor
In essence, Asset Master is an umbrella under
which the main elements of a leasing framework fall, including
asset management and residual value.
Salonen said: “We’re able to take on residual
value risk and, in some cases, it means it becomes more of an
operating lease. We’re then able to provide an asset management
solution and we can track the lease payments.”
He added the use of leasing in the public
sector in the regions covered by Nordea is growing in general, as
well as the use of vendor finance.
“In the Nordic and Baltic environment, this
type of co-operation is increasing,” Salonen said. “One of the main
things in the Nordic region is that even some of the manufacturer
captives that have their own operations elsewhere in Europe like to
co-operate with finance companies.”
It means, according to Salonen, that they can
concentrate on major operations around Europe while maintaining a
presence in Scandinavia – something he believes will increase in
health care finance.
In terms of remarketing, Nordea’s relationship
with equigroup again comes into play as the company maintains a
network of reselling channels.
Salonen said: “There are a number of channels
where we sell these items after the lease period. It depends on the
country but there are a couple of partners acting in all the Nordic
Lease periods typically last somewhere between
3 and 10 years, depending on the asset’s lifecycle.
Changes to technology can impact lease
agreements but they typically represent a long term investment,
According to David Martin, general manager of
the public sector division at the UK arm of Siemens Financial
Services (SFS), a significant amount of asset finance is still
being done within the NHS – but more needs to be done in terms of
educating hospital trusts on leasing.
He said: “There’s a lot to be done with health
care services to make sure they understand the benefits of leasing
and other forms of finance.
“I think they feel there’s a lack of capital
and therefore, they are either using their existing equipment for
longer periods or acquiring assets through their revenue budget,
which is where operating leasing is effective.”
The introduction of regulations on leasing
under IFRS with regard to the public sector has also had an impact,
Under recently-introduced rules, leasing must
be a revenue expense and for an operating lease, public sector
bodies must be able to demonstrate that all the risks will be
transferred to the lessor.
SFS offers financing solutions for the health
care business in Europe and in the UK, the company has operated
within this sector for more than 20 years. It has also done a
considerable amount of work with the NHS.
Martin said: “We don’t, as many people think,
focus on just Siemens equipment – we can fund all types of health
care equipment from various suppliers selling into the NHS.
“MRI, CT scanners, endoscopy, sterilisers,
beds – any asset that is fundable, we have the ability to finance
The company uses a number of routes to market,
including directly with the NHS via Supply Chain and via the
trusts’ intermediaries. It also has long-term relationships with
key suppliers and manufacturers and has a presence in veterinary
and dental care through its broker division.
Martin said: “At some point, we’ve worked with
over 50% of NHS hospitals in the UK. We do have a very strong
relationship with trusts – they have worked with SFS for a number
of years and they’re happy with how we operate and our reputation
at lease expiry.”
At the end of a lease period, Siemens takes
back assets and is then able to dispose of them on the open market,
“We understand where we can resell second-hand
medical equipment – a lot of banks have found that difficult,” he
said. “It could be through a variety of different routes, including
medical resellers and medical auctions.”
Like so many other lessors working in health
care finance across Europe, GE Capital has reported a notably
robust performance from the segment despite the economic
Its first quarter in 2010 was “relatively
strong”, said Andrea Minciarelli, general manager of health care
financial services in EMEA at GE Capital, although he was
circumspect on future growth.
“We are looking to grow the business in 2010,
although due to the sector’s resilience over the past two years, we
are looking at steady rather than radical growth,” he said.
GE’s main presence in Europe is in France,
Germany, Italy and the UK – although it also has capabilities in
Spain, Belgium, the Netherlands, Portugal, Switzerland and
Scandinavia, according to Minciarelli.
While it does work with the public sector, its
key clients are in the private sector, financing diagnostic
imaging, ultrasound and echography equipment.
Minciarelli said: “Reflecting GE’s health care
business footprint at a GE Capital level, we focus on financing
assets that we understand better than anyone else.”
Its current focus is on its captives business,
although it has plans to pursue growth in the vendor finance market
Deutsche Leasing is focusing solely on Germany
in terms of health care finance at the moment, having returned to
the market four years ago.
Stefan Tromm, account manager for health care,
said: “There is a growing level of business [in Germany]. We have
companies investing €8.8bn every year [in medical equipment,
buildings and infrastructure] and we have subsidies from the
government of €3.3bn.”
Of this, about €5.5bn must be financed through
alternative financing models and therefore leasing is becoming
increasingly important, Tromm said.
He said: “There’s a lot of innovation in
medical equipment in Germany. Leasing is something which can help
customers to bring costs down and improve their balance sheet.”
If a health care provider chooses to buy
equipment, Tromm added, depreciation will not match up to useful
Deutsche Leasing’s key clients are public
hospitals and physicians – especially radiologists – although it
does little work in the private sector.
And unlike the UK, German hospitals may also
be run by not-for-profit organisations – including the church – and
such hospitals are among Deutsche Leasing’s customers.
“Private hospitals use other financing models
at the moment – they don’t rely on leasing,” Tromm said.
The company does, however, have a presence in
the vendor finance market, via a joint venture with a company
specialising in medical equipment.
VAT is also a key factor, Tromm said, as there
is no deduction available for medical equipment for most of
Deutsche Leasing’s customers.
“If we do a leasing contract with them, then
they only have to pay VAT on the lease rate – we take on the
residual value,” Tromm said.
Deal sizes typically range from €500,000 up to
as much as €4m, with lease terms lasting between five and eight
years, and an option to buy equipment at the end of the
Deutsche Leasing’s main competitors, Tromm
said, are the major captives.
Its sister company, Deutsche Anlagen-Leasing,
also works on infrastructure deals, offering leasing on hospital
buildings. There is “close collaboration” between Deutsche Leasing
and Deutsche Anlagen Leasing, according to Tromm, although deals
are closed separately.
Johnson & Johnson
Health care providers in the UK have a unique
advantage over those elsewhere in Europe as they have access to
assistance from leasing advisors such as Leaseguard, said Stephen
O’Callaghan, Johnson & Johnson’s European business
He said: “It’s the only place where I’ve seen
advisers add value and I cover everything apart from the US. One of
the things the leasing advisors and the FLA have done is made NHS
trusts more familiar and comfortable with leasing and that’s been a
definite positive. I do think it’s something that has played its
part in facilitating leasing within the industry.”
As for Johnson & Johnson itself, demand is
still strong for leasing in the health care segment, especially
from the NHS.
“Over the last 10 years, trusts have become
more comfortable with operating leases – they’ve agreed it’s a tool
they can use,” O’Callaghan said.
Deal sizes can range from £1,000 (€1,163) to
£1m and asset values have remained largely stable, according to
“I think the future will lend itself more to
leasing than capital spending in the NHS,” he said. “It’s the same
across Europe – the health care providers’ budgets are being
reduced and leasing is a good solution for hospitals that have
limited access to capital.”
Johnson & Johnson also works with private
health care providers in the UK, as well as a number of providers
in Europe, where private care is more prevalent. The company is not
currently involved in any vendor finance programmes, concentrating
solely on leasing its own equipment, O’Callaghan added.
“The lease term for a £100,000 deal, for
example, is typically from two to seven years, depending on the
life of the asset,” O’Callaghan said. “These are very much
operating leases. We look at the life of the asset to make sure it
conforms to being an operating lease.”
Residual value, he added, can be anything
between 10% and 20%.
“[At the end of an agreement] if the health
care provider does not want to continue leasing the equipment, our
operating companies can make use of the equipment. They can
refurbish it or use it for spare parts,” he said.
3 Step IT
An asset management company based in Finland,
3 Step IT has recently begun work in the health care segment,
having focused previously on ICT.
Artti Aurasmaa, CEO of 3 Step IT, said: “For 3
Step IT, ICT is our arrowhead, which we focus on in all our
international markets.In Finland, we’ve expanded to other assets.
Health care has been one of the first asset categories and it’s
growing, but it’s not yet a major part of the company.”
3 Step IT has been working in the health care
segment for about two years, Aurasmaa said, including finance,
management and some remarketing.
He added: “We have funding partners who take
care of credit risk and they do the financing and the funding.”
Margins, he said, are not necessarily driven
by asset categories but more by customer credit-worthiness.
“What we’ve seen in the last couple of years
in general is that demand for leasing has increased and that’s
because of a shortage of liquidity – people are looking at
alternative funding,” Aurasmaa said.
“It seems to me that both public sector and
private companies are more interested in leasing solutions because
they understand from past experience how important it is not to tie
up capital and liquidity in fixed assets.”
The company specialises in managing lower
value assets, starting at €1,000 and below, and stopping at about
“We don’t act in the segment where we’re
talking about massive single items,” Aurasmaa said. “We’re better
managing lower-value items which can start from beds and things
like that. Residual value varies a lot from one asset to another.
Looking at the total health care market, especially if you go into
more valuable assets, then RVs can be quite high.
“The lower-value the asset, the lower the RV
needs to be. The key is cost savings for the customer.”
Still a relatively small offering, 3 Step IT’s
health care business works with hospitals in Finland, along with
municipalities and also has some joint ventures, although it has
only a couple of large private health care customers.
Another key factor driving the private sector
is the growing popularity of private health care provision being
offered by corporations to their employees.
“We see lots of opportunity for growth,
especially in Finland,” Aurasmaa said.
In Finland, the main competitor to leasing is
still cash, according to Aurasmaa, along with bank-owned financing
In the UK, contract procurement for leasing is
now run through NHS Supply Chain. The companies on its current
contract include major lessors such as De Lage Landen, Cisco, SG
Equipment Finance and CHG Meridian, although its new contract is
expected to be rolled out this month.
According to Supply Chain, radiology equipment
is most commonly leased, largely as technology within the
specialism changes rapidly.
Hospital trusts are also able to lease a range
of equipment, starting at low-value items such as operating tables
and washer disinfectors, all the way up to high-value items such as
MRI scanners or mammography equipment.
The main changes in the new framework will be
the availability of finance leases as well as operating leases,
quicker turnaround times, and assistance in negotiating
It will also include a reduction in the cost
of asset return and removal at the end of leasing agreements,
which, in some cases, will be paid for by the lessor.
Supply Chain, which took over leasing
functions from NHS PASA last year, is now touting the benefits of
leasing as swingeing public sector cuts loom.
It has been tasked with providing £1bn
(€1.2bn) of savings to the health service over the next ten years
and Andy Brown, managing director of diagnostics, said asset
finance may help to cut costs.
He said: “With efficiency savings near the top
of every NHS trust’s agenda, securing best value from capital and
revenue spend is vital and has never been more important. As part
of the wider public sector spending review we know that the NHS
will place considerable constraints on capital budgets over the
next few years.”
He added that, of the equipment purchased by
the NHS each year, the vast majority is replacement machinery. This
could mean a huge capital spend if a number of pieces of equipment
reach the end of their working life at the same time.
Brown added: “NHS Supply Chain’s leasing
contract provides a way for trusts to finance new equipment in a
cost-effective way where capital is constrained but the clinical
need is still there for up-to-date technology. Our leasing contract
will help the NHS because it will provide the speediest direct
route to the most competitive rates available from top tier
The leasing contract is part of a portfolio of
capital equipment solutions from NHS Supply Chain, which cover
procurement, maintenance, leasing, project management, planning and
disposal. Particular features of the leasing contract are:
- No lump sum capital investment;
- Access to higher specification equipment
through flexible financing;
- Simple upgrades and replacements;
- Assets financed over a fixed period for
easier budget planning;
- Better pricing deals though NHS SC range of
- Typically no disposal costs at the end of the
- Leasing contract and renewals management;
- A range of lease providers.
In December last year, Barnet and Chase Farm
Hospitals NHS Trust, in Enfield, Greater London, awarded a contract
worth £1.18m to Buckinghamshire-based lessor Cranmer Lawrence. The
company was tasked with providing a financial lease for medical
equipment at the hospital.
And the San Luigi Gonzaga Orbassano University
Hospital, in Torino, also awarded contracts with leasing elements
to companies including Johnson & Johnson and NGC Medical, worth
up to €17.2m.
A number of other Italian hospitals, including
the Ospedale Niguarda Ca’Granda in Milan, awarded contracts with
leasing elements to companies such as GE and Philips Medical
In March this year, NHS Supply Chain in the UK
also issued a contract notice to lessors, to tender for appointment
to its new framework agreement, which will be effective as of this
NHS Waltham Forest, which is the primary care
trust for the east London borough, currently has leasing agreements
on a number of small pieces of equipment.
These include 36-month leases on photocopiers
and franking machines at its main office, while more major leasing
contracts are with ONEL Community Services – the authority
responsible for health services in outer north east London.