Why NFP boards should finance healthcare equipment

Guide

4 compelling reasons to take investment in healthcare equipment off the books

Healthcare is being reinvented by digital disruption, with the next generation of smart clinical technology promising enormous positive change.

Hospitals are implementing digital strategies with the aim of delivering more efficient and effective health services. Wearables, remote monitoring, big data and analytics are transforming the ‘where’, ‘how’ and even the ‘who’ of health service provision.

Adam Harley, an enterprise solutions specialist with Macquarie Corporate and Asset Finance, helps hospitals to improve the quality of care and service by harnessing the latest digital technology.

He says that, in the next decade, almost every piece of medical equipment will capture vast quantities of patient data that can be used to improve safety, productivity and health outcomes – dramatically changing health provision practices.

“Instead of diabetics having to prick their fingers and use glucose meters to check blood sugar levels, Google is perfecting a contact lens that will continuously take glucose readings via the patient’s smart phone. It’s just one example of a long-standing technology being disrupted almost overnight.”

But the cost of such transformational technologies is high – and the pace of change is exponential. According to Harley, to avoid obsolescence, digital healthcare equipment often requires ongoing software upgrades, maintenance and staff training. This means that the total cost of medical equipment is not only much more than just the hardware, it can also be unpredictable. “An unexpected modular upgrade to incorporate a new innovation can throw out cost projections to the tune of hundreds of thousands of dollars,” he says.

Harley believes that, given the cost model associated with modern clinical assets, the traditional not-for-profit (NFP) approach of using fundraising proceeds to buy equipment is no longer sustainable.

Finance allows NFP boards to compete and grow in today's evolving healthcare environment, while avoiding risk and capital outlay spikes.

“The convergence of clinical assets and IT software gives medical equipment new obsolescence and lifecycle patterns. As a result, there are now at least four compelling reasons why NFP boards should harness healthcare equipment finance.”

  1. Avoid high capital outlays and get a better return on investment

    “This is the reason that most for-profit hospitals have always used equipment finance – it removes the need for major, upfront capital outlays and keeps them off the balance sheet. Buying your own equipment is not a smart investment. If you put your funds into a depreciating asset, you’re tying up working capital that could generate stronger returns or deliver higher value for your clients in another area.

    Many people don’t realise that, with the right provider, you can keep finance interest rates close to zero. You pay virtually the same amount of money as you would to buy the equipment, but you can spread it over the five to seven-year term of the contract in manageable amounts.”

  2. Mitigate cost blow-out, obsolescence and disposal risks

    “Investing in rapidly changing digital technology is inherently risky. Using finance moves nearly all the risk to your provider.

    For example, finance gives you certainty around costs. You can bundle all the costs of installing, running and maintaining clinical equipment (including upfront hardware costs and ongoing costs like staff training and software upgrades) into a monthly cost-per-device managed service agreement. So the asset is totally supported and, if it needs a modular upgrade, you can just add that payment into the contract and smooth it out over time.

    With the current pace of change, buying equipment upfront creates the risk that you’ll get stuck with obsolete assets on the balance sheet. Whereas, with finance, you simply hand outdated assets back to the provider at the end of the term and upgrade to the next generation technology. If you need to upgrade sooner than planned, a flexible financier will restructure your contract to make that happen seamlessly. If you want to keep some or all of the equipment, your provider will sell it to you at a fair market value. Otherwise, they will dispose of it for you.

    To this point, now that clinical assets store patient information, disposal is not just cumbersome – it also carries privacy and IP risks. To mitigate that risk, Macquarie offers a proprietary data sanitisation service. That means we take on responsibility for destroying all the data on a returned asset and provide our clients with a certificate of data sanitisation to protect them against potential litigation should an asset be inadvertently on-sold with patient data remaining on end-user devices. We also dispose of assets that cannot be refurbished or resold with regulatory-compliant and environmentally-safe services.”

  3. Decrease ALOS and improve operating efficiency

    “Digital healthcare supports earlier discharges by allowing patients to be safely monitored at home, reducing average length of stay (ALOS). It also improves productivity and efficiency by streamlining clinical and administrative workflows, automating reporting and accelerating decision-making with analytics.”

  4. Access the latest technology

    “Perhaps most important of all, finance enables NFPs to provide their clinicians with the latest digital technology. You can even install equipment now and defer payments until budget dollars are available.

    This means NFP boards can keep their clinical facilities at the forefront of healthcare innovation. In turn, this supports an NFP’s commitment to deliver better patient outcomes and attracts the best people to its important work.”

Finance allows NFP boards to acquire, manage, and retire the medical and technology equipment needed to compete and grow in today's evolving healthcare environment, while avoiding risk and capital outlay spikes. As a result, NFPs can efficiently care for more patients with greater safety and improved patient and staff satisfaction.

We can help your organisation reach full potential and make a difference. Learn about our smart business solutions for not-for-profits, or reach out to a specialist today by contacting notforprofits@macquarie.com. All of our financial recommendations are tailored to your organisation’s specific needs and aspirations.

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