Do you know the right financing strategy for your hospital?
Since the beginning of the global economic crisis the question of whether and how much hospital managers should invest in updating medical technology has become more complicated. Fear of making the wrong decisions and insecurity around future budgets make it even more important to find trustworthy and competent financial solutions shaped to the specific needs of individual hospitals. VR Medico, the medical branch of VR-Leasing AG, offers such solutions.
At the Hospital Manager Symposium (7 March 2009. 8:30 am – 1:30 pm), held during the European Congress of Radiology (ECR) in Vienna, André Hoppen (AH), Sales Manager for VR Medico, will discuss ‘Financing Hospital Equipment’ with the symposium participants. European Hospital (EH) met up with him at RSNA 2008 to learn about the sustainable financing on offer and what criteria influence lenders’ decisions to hand out funds.
André Hoppen: When it comes to financing we distinguish between manufacturer-owned leasing, which means financing solutions available directly from the manufacturers whose products a hospital chooses; the independent leasing companies that mainly offer contracts with small business volumes, and bank-linked leasing as offered by VR-Leasing.
The particular feature of the VR-Leasing group is that, whilst it is a generalist company and offers the complete leasing spectrum, it works around specific business divisions, which means there are specific solutions for IT companies, for the automotive sector and the medical sector. VR Medico is a separate division within VR-Leasing. All our employees have many years of experience in areas such as medical technology, health economics, medicine and pharmaceuticals. With this staff structure we are well positioned and talk the same language as the customers. This is particularly important for advising large and individual customers, helping us to gain an understanding of their specific requirements and enabling us to offer customised financial solutions.
A further feature of VR-Medico is that our credit analysts are trained at the Academy of the German Hospital Association to ensure they can fully read and understand hospital balance sheets, because these differ significantly from those in private industry and they have very different parameters. When a decision is made on financing there has to be a clear understanding of how a hospital draws up the balance sheets, as well as why and how balances function, based on the DRGs. Or, let’s take the example of the gGmbH in Germany: this type of company is not aimed at achieving profits – it has a social aspect – but it still enters into leasing contracts.
We don’t only operate in Germany; VR-Leasing cooperates with a multitude of subsidiaries and partner companies and offers medical technology leasing over almost all of Europe. Each country has specific requirements as to how a leasing contract should be set up. One basic difference between Germany and other European countries is that, in Germany, there is not normally a requirement to make a down-payment, something which is a requirement for a leasing contract in most other countries. Additionally, the balance sheets in the various countries are very different. In Eastern European countries, for instance, hospitals draw up balance sheets in an analogue way, based on the IFRS standard or the US-GAAP standard, that is, based on international balance sheet guidelines, which is actually quite rare in Germany.
In Eastern European countries we also distinguish between financial leasing and operating leasing, which, again, is the exception in Germany.
What is the difference between the two kinds of leasing and which is suitable for what?
With financial leasing the acquisition is fully amortised, that means there is no residual value. With operational leasing, the leasing company retains a residual value, the investment is not fully amortised and at the end of the lease term the leasing company has to dispose of the medical equipment on the free market in a way that ensures they don’t suffer any losses.
Operational leasing means that the leasing company has to dispose of the equipment at the end of the lease term. Within the EU, medical technology can only be sold (and sold on) via so-called medical products advisors. This is why the leasing company has to work with the manufacturers and brokers when it comes to selling on the equipment.
Operational leasing offers more flexibility but is more expensive. The lease duration is a maximum of four years, after that the equipment is returned or sold on. Operational leasing is the right product for customers who want to keep continuously abreast with technological progress and innovation, maybe because they are market leaders for a certain medical service in their area. These may be large service providers but also individual, smaller surgeries that cooperate with large service providers and which bridge a medical gap for the respective service provider, or which offer the best possible service based on the latest technological developments. By comparison, the lease duration for financial leasing is eight years and obviously works out cheaper.
Our concept of responsibility towards the customer not only includes advising them to choose the right strategy but also to monitor whether they actually generate enough money in working with the leased equipment to cover the monthly outgoings of the lease. This involves assessing how many private payers, private patients, patients covered by medical insurers and referring doctors are passing through the hospital and what types of patients with what GOA figure (physician fee schedule figure) these are. A lease contract is not a matter of course but in each case is put to the acid test.
This can lead to surprising results. One example: A hospital with 80 beds, located near a conurbation, was under economic pressure and the question is whether it should be closed or whether there may be a new, viable concept. If yes, what could this concept look like? The hospital’s advantage is its regional aspect and location, which many patients appreciate because relatives and friends have easy access and can visit more often. Through negotiations instigated by VR Medico the hospital made contact with a large provider in the nearest big town, which was interested in attracting more patients from further afield to certain departments. Both hospitals operate with different billing structures. The small hospital works with DRG-based compensation structures for appendix operations, for instance, something which the large hospital cannot afford to do because it has a different structure. In the end, the model agreed on ensured a minimum provision of basic services in the small hospital, whilst special interventions or intensive therapy were to be carried out by the large hospital. After such intensive therapy the patients were transferred to the small, regional hospital.
The conclusion: The large hospital gets some relief with the length of hospital stays, the regional hospital takes over aftercare and brings patients closer to their families – and the cooperation has positive effects for both hospitals in terms of DRG billing.
10.01.2009
