To buy or to lease?

Having the latest medical equipment doesn’t guarantee a high quality of affordable healthcare. But it often helps. And having to make do with unreliable, inefficient or outdated equipment can curb the provision of good healthcare.
    
It’s clear meanwhile that the NHS is likely to face very difficult and extremely challenging financial pressures in the next few years. There are likely to be modest or no cash increases in NHS spending – increasing demand, and inflationary cost pressures. Efficiency improvements are supposed to generate £20 billion in savings over four years. Maintaining and improving high quality healthcare services will depend increasingly on cutting waste and boosting efficiency. According to the NHS Confederation, the quality and efficiency gains are most likely to come from large-scale redesign of clinical services.
    
Not all changes to clinical services will need new equipment, but many will. But it is often difficult for clinicians to get hold of the equipment they need. The NHS Confederation had reported that the process of introducing new technologies is tortuous. It requires clinicians to have the determination to take on a system that often appears designed to stop innovation. According to the policy institute Reform there is a fear of capital spending in the NHS, even though capital projects can be a driver of change.
    
Medical equipment investment in the UK is lower per head than in many other countries, including Germany, France, USA and Canada. The Finance and Leasing Association has proposed that it should be easier for those leading changes to clinical services to obtain new medical equipment.

New equipment
Many in the NHS assume that new equipment has to be purchased. Leasing equipment from the private sector is often seen as too expensive or too difficult. But is this assumption right?
    
Probably the most significant objection to leasing in the public sector is that the cost of government borrowing is less than that of banks and other leasing companies. But because the government stands behind NHS borrowing, interest rates charged by leasing companies are usually competitive with the costs of public funds.  And increasingly, buying equipment outright just isn’t going to be realistic as less money is made available for investment.
    
More fundamentally, it’s only by comparing the total costs and risks of equipment purchase, operation and disposal can a proper comparison between owning and leasing be made. In particular, with leasing the private sector can take the risk that the equipment might not be needed after a few years. In the industry jargon, this is called the residual value risk. As the pace of change of developments in many types of equipment – such as radiology or remote monitoring units – increases, it makes sense not to commit to the same equipment until it breaks down.

Accounting rules
Unfortunately the introduction of new accounting rules in the NHS is causing a lot of confusion. Accounted for one way, the only cost of leasing is the rental payments. Accounted for another way, there are extra costs called depreciation and capital charges. You will be relieved to hear that the details belong in ‘Accounting Standards Bulletin’ not ‘Health Business’! But the bottom line is that accountants’ judgements can make all the difference between essential medical equipment being affordable or not. This makes no sense at all and we are calling for the rules and guidance on accounting to be improved.
    
Leasing agreements with the private sector provider can also be off-putting. The NHS Procurement and Supply Agency (PASA) has, over recent years, tried to help by preparing some standard agreements, simplified procedures and a list of approved suppliers. Although well-intentioned, take-up hasn’t been high. Sometimes the guidance seemed to make using leasing more, rather than less, complicated.
    
The leasing industry has welcomed the recent announcement that NHS Supply Chain will take over responsibility for leasing in the NHS. Supply Chain plans to provide more practical assistance than PASA did, and should help to simplify the use of leasing. It really should be simple, because for all the jargon involved, leasing is simply about renting equipment and often about having that equipment maintained.

Leasing agreements
A successful leasing agreement needs more than a good legal agreement. Users need to be confident that they will be treated fairly and responsibly by their leasing company. The Finance & Leasing Association’s (FLA) code of practice helps to achieve and maintain the essential level of trust needed between NHS users and their leasing company partners.
    
In today’s economy and at a time when technology is moving so fast, leasing new equipment is more likely than ever to make sense. Leasing has always been about making smarter use of limited resources, keeping options open by having the flexibility to change equipment after a few years, facilitating efficiency improvements and improved patient care.
    
As financial pressures grow on the NHS, large-scale redesign of core medical processes in hospitals will need upfront investment, including new medical technology. Changes to NHS financial and procurement processes are needed to make it easier for clinical teams to get hold of the equipment they judge that they need. In particular, the processes for obtaining equipment leased from, and sometimes maintained and managed by, the private sector need to be streamlined.
    
If this can be achieved, as well as leading to efficiency savings from more reliable equipment, it will help support clinical teams deliver the process improvements needed to maintain and improve healthcare services – the ultimate goal for all Trusts.