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Financing All That Information Technology: One Healthcare Financing Expert's View

August 9, 2016
by Mark Hagland
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Gary Amos shares his perspectives on the current challenges involved in capital acquisition in healthcare

Last month, the Munich, Germany-based Siemens Financial Services released a white paper entitled “Champions of Change: Expert Insights into Essential Healthcare Technology Investment.” That white paper covers a broad range of issues facing finance managers in healthcare. For example, its sections are as follows: “Managing investment in a capital-constrained environment”; “Adapting to market forces”; accessing digital innovation and technological transformation”; and “Meeting regulation and compliance requirements.”

In the “managing investment” section, the authors note that “Pioneering healthcare finance managers universally report an inexorably intensifying pressure on capital budgets as they struggle to meet increasing healthcare service demands and improved patient outcomes, in the face of escalating healthcare operational costs and more stringent performance measures. This is leading them to diversity their sources of finance to better cope with the demands and challenges. Access to alternative financing solutions, increased budgetary control and predictability is reflected in a widespread desire for financing techniques where payments are predictable and agreed rates cannot be changed once put in place,” the authors note.

What’s more, they continue, “Specifically addressing the challenge of investment in up-to-date medical technology, respondents reported that cost constraints are impairing the ability to acquire the most accurate or productive technology as the foundation for improved levels of patient care. Moreover, budgetary constraints are extending their use of outdated equipment. As a result, healthcare finance managers noted that they risk losing patients to other organizations more capable of meeting increasing patient expectations for quality treatment. Healthcare organizations are actively exploring means of escaping the constraints of this negative spiral,” they report.

Meanwhile, in the section entitled “Accessing digital innovation and technological transformation,” the report’s authors, speaking of the senior healthcare executives surveyed for the report, note that “Respondents report that they have diversified their funding sources, particularly into asset finance, rental, leasing and forms of cost-per-use. These asset finance techniques,” they note, “are perceived by healthcare finance pioneers to bring a number of specific advantages, including: making innovative technology accessible and affordable; the capability to bundle total costs of ownership (maintenance, software, services); the resulting financial transparency that makes financial planning more reliable and helps build compelling business cases for tech investment); the possibility to add in new technology acquisitions without necessarily having to negotiate a new financing plan; the medium-to-long-term flexibility to upgrade when future medical technology advances come to market.” Given the rapid changes in the financing landscape, they note, “Financing techniques that allow more flexibility in dealing with rapid cages in patient service demand are particularly valued.”

In the wake of the release of the report, HCI Editor-in-Chief Mark Hagland interviewed Gary Amos, CEO of Commercial Finance, North America, at Siemens Financial Services. Amos, who has been with the organization for 10 years, and five in his current role, leads a team of 70 people in the U.S. Their organization finances both technologies from Siemens and from other companies. Below are excerpts from that interview.

When you look at the landscape around the financing of capital acquisitions at this time, how do you see it, overall?

I think you have to look at it in a couple of different ways. Let’s look at access to capital from a finance standpoint first, in terms of risk profile. There are three broad groups, which we might call “A,” “B,” and “C.” In the “A” category, among academic medical centers and large institutional credits, access to financing remains broad and wide; it includes bonds, cash, and endowments. CFOs of those organizations would probably place leasing and financing number three, possibly number four, in terms of how they pay for their IT purchases. As you move down the continuum to the “B” group, and look at smaller hospitals, their access to capital becomes a little bit different. They might not have a bond rating or access to endowments or cash. There, equipment and leasing finance would become more prominent. Take it down one more tier, to the “C” group, which includes freestanding imaging centers and medical centers and medical group practices, that’s different still. You can’t float a bond in those structures. So they’re involved in equipment and leasing, but it’s with finance from organizations like ours and GE Finance.

Gary Amos

How ha the environment changed in the last year or two for those different types of healthcare organizations?

From the lender standpoint, there’s been a dilutive effect to interest margins. If you look at the risk profiles in those A, B, and C groups—A is academic centers and large hospitals; B is regional hospitals; and C is freestanding imaging center or physician group practice, form a finance standpoint, as lenders look at those. A organizations have easy access to credit, through bonds, etc. Bs can still get access to cash and bonds. Cs, that goes away. What we’ve seen in the last few years from the lender view is that the yields or spreads, the interest rate we charge you, the margin should be higher, but it’s not necessarily the case.