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 Moreover, budgetary constraints are extending their use of outdated equipment.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.
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.
There are so many lenders chasing all three of those groups, so our margins are going down. Now, what’s the provider view? From the provider view, what’s happened is that the access to equipment and IT—if they’re A-level, they have purchasing power as an academic medical center. They’ll command the best prices. It goes down from there. But there’s a dilutive effect, because there’s recently been price degradation for manufacturers, too. So selling services and total solutions has more become the mantra. So not only the manufacturers but also the lenders have embraced the idea of total payment that encompasses equipment and services.
So, PACS, for example, is now a mature market. Does the existence of comprehensive packages then mean better deals for providers?
I’m not sure that it’s better deals that are available, but they’re certainly more predictable deals. If the services are bundled into a total cost ownership structure, it almost becomes… the equipment becomes incidental. It’s all about the services that I can match up to my pay for performance. And as they get reimbursed on value more than FFS, things are changing. So now you need predictive analytics. And you take that next step as a manufacturer. And you say, I know the market is being driven towards value and away from volume of scans. So I need predictive indices that will help me move forward on protocols. And then we as the manufacturer—Siemens Healthcare, GE, Healthcare, everyone—then, yes, my equipment is incidental. And the focus becomes around services, including maintenance, as well as bundles of features and capabilities, too.
It's really about aggregating data in a population set. The larger the populations around which you can aggregate data, the better you can predict utilization. Copiers can now tell you they’re volume. So it’s a little bit of evolution more than revolution. We’ve been talking about this forever, going back to my GE days. It’s only recently that I’ve seen things now like managed equipment services, MES. You’ll hear that all across healthcare right now. It’s proven itself in Europe; there’s a lot of this that’s been put in place there. And a true MES is one in which you as the provider of equipment and services, you almost become equipment-agnostic—you’re delivering equipment, IT, services, regardless of the manufacturer. A true MES gets done when you’re equipment-agnostic. Most MES, you’re still trying to stick to your own company’s domain; but that’s changing.
What should CIOs and CTOs be thinking about now, given all this?
My personal opinion is that when you look at some of the larger platforms out there, IBM, folks that can aggregate data and use some of the technology they’ve already built, through Watson, these super-computers—CIOs and CTOs are making decisions on different types of operations and information systems, and the interoperability isn’t always out there. Case in point, there are some hospitals out there right now, and trying to figure out how they can leverage various types of information systems from which they can derive clinical outcomes, and get value from those various IS. We subscribe to data agencies, even here at Siemens, and they’ll give us predictive industries on payer-type activity, in finance. Now think about the access you have to all kinds of clinical information in the hospital. But your data set is limited to the patients you have. If you can expand that data set through a data aggregator and tell you about your diabetic patients, you have the opportunity to provide a better data profile, based on data aggregation.
So providers will have to expand tremendously where they get their data from and how they use data?
Yes. Even at Siemens. And we sold our EHR to Cerner. They’re a best in class out in Kansas City. They bought our whole platform. And you see some of those EHRs starting to consolidate in their space. Hospitals are consolidating on their side, and EHR vendors are consolidating.
So what will happen in the next few years?
What I see, in listening to physicians on the value-based side, I hear them talking about the aggregation of data and their access to it; they’re seeing it happen. They can more often now analyze aggregated data sets. So those data sets will broaden and become wider, and they’ll have more desirable outcomes. And you see a lot of companies, like the Googles of the world—it’s only a matter of time before companies find ways to aggregate data across multiple platforms. We talk even about that in finance companies.
The leaders of hospitals and medical groups need to think more broadly about all this, then?
Yes, the term “big data” is so widely used. You can have a ton of data. You can take the 64-crayon crayon set, but do I know how to use magenta? That’s the challenge. What the equipment can produce in terms of data—how to derive the right data to treat the patient at the point of care—all the partners become actively involved. And even the patient does.
The main takeaway here is this MES concept. It’s an interesting concept, and it’s how a lot of technology will be bundled into healthcare equipment, and will be bundled as a service. That’s where things are going, where the equipment becomes almost incidental. And if that bundled equipment isn’t put into place, those providers who can’t do that, will struggle in the next few years.