Photograph of medical bottles


An aging population in Europe
means pressure to maintain spending in health care is building. At
the same time, governments, grappling with austerity measures, are
pushing health care providers to do more with less. All this plays
to the leasing industry’s strengths. Vicky Meek


Health care is one of the most
capital-intensive sectors globally, even during periods of economic
downturn – money must always be spent, whether from the public or
private purse, on treating illness and injury. What’s more, the
average age in most Western populations is rising, which places
even greater strain on health care budgets.

This heavy requirement for capital
has therefore meant decision makers increasingly look to
alternative means to secure investment in necessary equipment, and
in turn, has had a positive effect on both the current and
potential demand for leasing.

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Steve Riggs, head of health care
business at De Lage Landen (DLL), places the number of people aged
64 or over in Europe at 110 million.

“This makes leasing a very
important tool for health care providers, as demand for equipment
will continue to grow for at least the next 20 years,” he says.

Indeed, a report by business
strategy and market intelligence provider Global Industry Analysts
predicts the global medical equipment rental and leasing market
will be worth $56 billion (€39 billion) by 2017, and that Europe
will be the single largest regional market in the world.

The report states: “Leasing is
growing as the most preferred alternative method for financing
medical technology in countries such as France, Germany and the UK,
due to budgetary constraints faced by most of the hospitals in

It is to be expected, therefore,
that many of the largest lessors are dedicating significant
resource to gaining market share. DLL, for example, has seen a
major increase in the amount of business it has written in the
sector in the last four years.

“Overall, we are seeing shifts in
the ways health care providers are looking for financing, and
leasing is one of the beneficiaries,” says Riggs.


Demand ‘steady to

Siemens Financial Services (SFS)
also has a significant presence in the sector, and in 2008, it
established a UK practice finance service aimed at primary health
care providers.

David Martin, a general manager at
SFS, says demand for equipment has remained “steady to rising”
during the downturn and that leasing as a means of funding
investment in it has received a boost from UK procurement body NHS
Supply Chain.

He says: “Health care budgets
across Europe have only recently come under serious pressure with
tough efficiency targets, pressure on capital budgets in the UK,
and reduced reimbursement levels in France and Germany.

“In the UK, the NHS budget has more
than doubled since the millennium, so that gives a true perspective
on recent years. Leasing is getting improved awareness and
positioning in the UK, where NHS Supply Chain actively promotes its
benefits in some of its key documents.”

In June 2010, NHS Supply Chain
announced a new leasing contract involving 20 lessors.

In the announcement, Andy Brown,
the organisation’s managing director of diagnostics, said: “Leasing
can often be the most sensible choice within the NHS to finance
medical equipment as technological advances often outpace the life
of equipment.”

But despite this endorsement, SFS
believes there is potential for much more leasing business to be
done in the sector. It issued a report earlier this year, claiming
that “billions of euros are tied up in frozen capital” in health
care services globally, as many have continued to purchase
equipment outright, instead of seeking alternatives to direct
capital outlay.

Leasing is an essential tool in
making sure health services are able to acquire the most up-to-date
equipment, and helping governments to increase efficiency, Martin

“Leasing is crucial to implementing
efficient health care,” he says. “By acquiring the latest health
care technology affordable and transparent, it not only overcomes
the issue of tying up or ‘freezing’ scarce funds in capital
spending, but also has the long-term benefit of avoiding
accumulated frozen capital with each year that passes.”

The rapid pace of technological
advancement in the sector has focused health care providers’ minds
on ensuring they have the newest technologies at their disposal –
as it can also help to drive down costs.

Alongside improving outcomes for
patients, it can ultimately minimise the expense associated with
diagnosis and treatment, as well as maintenance of older, less
reliable machinery. Improvements in scanning equipment, such as
MRIs, CT scanners and X-rays, mean patients can be diagnosed
quickly and accurately, without invasive, and more expensive,
exploratory procedures.

“Ironically, the drive to institute
efficiency goals has focused health care organisations more on the
need to have the latest equipment,” says Martin. “This equipment
tends to have a disproportionately positive impact on diagnostic
and treatment throughput, accuracy and lower maintenance spend,
which all result in an overall lower cost to the hospital. That’s
particularly the case where organisations have been relying on
outdated equipment for several years.”

Andrea Minciarelli, head of health
care financial services in Europe at GE Capital, agrees. “Without
doubt, the principle driver for investing in equipment today is to
increase efficiency, push down costs and boost profits,” he says.
“In addition, health care providers are increasingly focusing on
patient safety and efficiency.”

Central and Eastern Europe,
Minciarelli adds, may be worth exploring, as outdated health care
systems in use there are being brought up to scratch.

He says: “The strongest overall
demand, encompassing all types of health care equipment, comes from
eastern European markets, most notably, Poland, Hungary and the
Czech Republic.”


Maintaining a technological

Also driven by the requirement for
providers to remain at the cutting edge of technological advances,
Barclays Corporate signed a deal earlier this year with BMI Syon
Clinic to provide £2.5 million (€2.84 million) of asset finance for
imaging equipment at a new clinic in Brentford, London.

“We continue to see a consistent
level of interest in equipment being purchased, with a number of
organisations creating efficiencies by investing in new equipment,
and in doing so, reducing their maintenance costs,” says Paul
Brake, a relationship director in asset finance at Barclays

“Additionally, by ensuring they
have the newest and most reliable equipment, they continue to
attract referrals from consultants, as well as the best talent for
their teams. Health care organisations continue to look closely at
efficiencies within their business and this may lead to an increase
in expenditure on key income earning assets.”

This also means replacement cycles
have shortened, which again drives demand. Martin says:
“Manufacturers are designing their offerings for this environment,
for instance selling a hardware platform that will last for five to
seven years, but where software and component upgrades can be
refreshed every two to three years.

“Nevertheless, these upgrades still
cost money. As the need for capital outlay increases, the pressure
on budgets tightens. Leasing and asset finance has been recognised
by a number of finance professionals in the health service as the
means to ‘square this circle’ – to the extent that some devotees
acquire almost all their equipment on a lease basis.”

As a result, some lessors are now
offering a more holistic approach to capital expenditure. “There is
an increasing interest in what I would call full facility financing
– in other words, bundling all equipment aspects of a clinical or
diagnostic unit into a single financing arrangement,” says

“From the lessor’s point of view,
the volumes are greater, and the lessee gets the benefit of one
arrangement to simplify their financial management. The other
benefit to the lessee is that they don’t have to find capital to
acquire the new equipment, and can sometimes recover the VAT.”

Assets financed within a single
package, he adds, can range from sophisticated diagnostic
machinery, to hospital beds. And despite the ever-changing nature
of technology in the sector, residual values have also held up

“Residual values are strong and
have remained so – something that’s not true of the leasing market
as a whole,” comments Martin.

Minciarelli adds: “Although
technological advancements have meant tight new product evolution
cycles in areas such as CT scanners and a resulting lowering of
RVs, this has been mitigated by a growing global second-hand market
for this type of asset.”

Yet despite its attractions, the
health care market is not always easy to navigate. Increasingly
centralised procurement and the time-intensive nature of tendering
processes mean leasing in the sector has now generally become the
preserve of larger players. Many brokers and smaller lessors have
exited the sector altogether, citing an increase in the level of
bureaucracy, as well as the need to carry out a lot of legwork,
often for little or no return.

A high level of specialist
knowledge is also required, as well as the willingness to commit to
the sector long-term.

“Health care finance tends to be
the domain of specialists who possess the knowledge of the
technologies and assets involved, along with an ability to
understand their clinical and/or diagnostic suitability, and the
understanding of how to structure financing arrangements so that
they work well for both lessor and lessee,” says Martin.

He adds: “Much public sector
financing is highly reliant on trust and track-record – the lessees
are managing long-term strategies and targets, and so are
understandably reluctant to deal with organisations that might exit
the market at the first sniff of a downturn.”

And while new government policies
or reforms can drive demand for health care leasing, the abrupt
withdrawal of support for particular areas can leave lessors
suddenly vulnerable.

“Government policy has a huge
impact on the health care leasing business. Re-imbursement rates
are one of the biggest factors,” says Riggs. “Funders have to
research the policies in each market to ensure their strategy is
aligned with demand.”


Changing demand

Lessors must also consider changing
demand patterns as value-for-money considerations shift:
technological advancement can only deliver efficiencies for so
long. Imaging equipment is one such example, says Riggs.

“While the focus a few years ago
was on buying diagnostic equipment, such as imaging machines, the
emphasis has now shifted towards treatment,” he says. “Diagnostics
have reached a plateau as the sophisticated equipment now being
used gives very precise information and any improvements can offer
only marginal benefits versus costs.

“However, there are efficiencies
still to be gained by spending on treatment equipment, such as
surgical robots, radiation equipment and linear accelerators, so
that’s where government budgets are now concentrated.”

This means funders must keep a
close eye on trends to ensure they know where demand will arise in
future. Intangible assets such as software have also become more
important within health care, and may hold potential for larger,
well-capitalised players – but some lessors are less keen to
finance it.

Riggs explains: “There is not a lot
of collateral if things go wrong and they can’t take the
reputational risk of pulling the plug on health care assets.”

Nevertheless, the consensus appears
to be that demand for leasing across the health care segment will
increase, although lessors must keep up with changing appetites and
demand from new markets.

“Demand is still fairly strong in continental Europe as specific
types of technology remain underdeveloped in some countries,” says
Minciarelli. “Examples might include nuclear medicine in southern
Europe and magnetic resonance in countries such as Portugal and