Health Service Focus

17.07.17

Financing options explained: How to control capital expenditure on healthcare equipment

It is no secret that budgetary constraints in healthcare are, to put it mildly, tight. Despite best efforts to centralise, rationalise and undersize NHS spending, the enormous and perennial top-down financial pressures inevitably filter down to the individual clinic and hospital department where the most difficult spending decisions have to be made. 

Capital expenditure on equipment is an absolute necessity on the frontline of healthcare. Not only does the latest technology save lives, it can also go a long way to making care delivery more efficient and, in the long term, affordable. 

But cutting-edge medical equipment comes with a cost – and that doesn’t account for all capital costs in GP surgeries, clinics and hospitals, either. Healthcare services also need IT systems, beds for patients and much more besides. 

All of this adds up to a lot of difficult decision-making, as budget-holders at trusts and CCGs try to balance financial pressure from above with the demands of providing world-class service. The aim of the game is to make a little go as far as possible, by making smart purchasing decisions to gain the maximum long-term impact on service.

Making money do the hard work 

Without endless capital reserves and little room for manoeuvre, finance becomes all-important. Finance is how you can make the money do the hard work and create flexibility where you don’t have any. If you understand how to use the right options in the right situations, finance allows you to procure the equipment you need while keeping costs under control. 

Here are the main asset finance options available to healthcare buyers, and when they are most useful:

Hire purchase 

Hire purchase allows you to spread the costs of capital expenditure over a fixed period of time. Once the payment term is completed, you get the benefits of outright ownership, just without the upfront costs. 

Arrangements will normally include a nominal deposit and then regular repayments, which include interest. Payment options are often flexible, allowing you to stay in control of your budgets.

Finance lease 

A finance lease is one of the most flexible finance options available. As with hire purchase, you spread the capital costs of a new piece of equipment over an extended period and use it in the meantime on a rental basis. The difference is, you don’t have to commit to full purchase upfront, and repayment rates are usually lower. 

At the end of the agreed term, you have three choices: you can pay off the remaining balance in a ‘balloon payment’ to buy the equipment outright, extend the lease arrangement, or cancel it altogether and return the equipment. This is a great option if you are not certain how long a piece of equipment will be operationally useful to you, or if you want to keep expenditure down in the short term. 

Operational lease 

An operational lease is a full rental arrangement – your finance provider purchases the equipment, and you lease it from them at a fixed rate over a fixed term. Unlike with a finance lease, there is no option to purchase at the end and the asset is simply returned. This is a useful option for getting access to high-value or specialist equipment you need for only a limited time, or for protecting yourself if its resale value deteriorates quickly. 

Unsecured loan 

A loan allows you to complete a capital purchase upfront, using the lump sum loaned to you. There is no period of third-party ownership as with a hire purchase, and for bookkeeping purposes, interest repayments are a finance cost rather than part of the capital costs of purchase. 

Find out more

Peregrine Leasing is one of the UK’s leading providers of asset finance, with more than 25 years’ experience in the healthcare industry. Visit www.peregrineleasing.co.uk to find out more.

Comments

There are no comments. Why not be the first?

Add your comment

 

national health executive tv

more videos >

latest healthcare news

Councillors fear identity crisis following CCG merger

22/06/2018Councillors fear identity crisis following CCG merger

Members of one of Kent’s leading councils have voiced their concerns against an upcoming merger between CCGs in the area. Cllr Wendy P... more >
Top NHS England boss to leave the organisation

22/06/2018Top NHS England boss to leave the organisation

NHS England’s chief financial officer will leave the post after 11 years. Paul Baumann CBE, who joined NHS London in 2007, and took up... more >
Most urgent primary care services ‘good’ or ‘outstanding’

22/06/2018Most urgent primary care services ‘good’ or ‘outstanding’

Over eight in 10 primary care services are providing good care, despite mounting work force and commissioning pressures, the CQC has said. A... more >

editor's comment

25/09/2017A hotbed of innovation

This edition of NHE comes hot on the heels of this year’s NHS Expo which, once again, proved to be a huge success at Manchester Central. A number of announcements were made during the event, with the health secretary naming the second wave of NHS digital pioneers, or ‘fast followers’, which follow the initial global digital e... read more >

last word

Hard to be optimistic

Hard to be optimistic

Rachel Power, chief executive of the Patients Association, warns that we must be realistic about the very real effects of continued underfunding across the health service. It’s now bey... more > more last word articles >
681 149x260 NHE Subscribe button

the scalpel's daily blog

The impact of NICE on cardiovascular disease prevention

06/06/2018The impact of NICE on cardiovascular disease prevention

Professor Gillian Leng, deputy chief executive and director Health and Social Care at NICE, looks into what can be done to decrease cardiovascular disease nationally and how to prevent missed opportunities in the future. Cardiovascular disease (CVD) accounts for just over a quarter of deaths and affects around 7 million people in the UK. Risk factors for CVD include smoking, obesity, mental illness, physical inactivity, and long-term fa... more >
read more blog posts from 'the scalpel' >

comment

Getting more out of our medicines

20/06/2018Getting more out of our medicines

Paul Chrisp, programme director of medicines and technologies at NICE, describes how the organisation is re-purposing drugs in order to improve p... more >
Under attack

20/06/2018Under attack

One attack against an NHS worker is one too many. But unfortunately, the trend in recent years has been alarmingly upwards, with no part of the N... more >
Lessons from WannaCry

20/06/2018Lessons from WannaCry

Sir Geoffrey Clifton-Brown, a member of the Public Accounts Committee, warns that the UK Government must take seriously the threat of a more soph... more >
A hostile environment

20/06/2018A hostile environment

Dr Terry John, chair of the BMA’s international committee, gives his thoughts on the government’s visa and immigration policy and its... more >
The Memorandum of Understanding: Privacy at risk

20/06/2018The Memorandum of Understanding: Privacy at risk

The Memorandum of Understanding (MoU) between the Home Office and NHS Digital meant that patient data and confidentiality was being put at risk a... more >

interviews

Duncan Selbie: A step on the journey to population health

24/01/2018Duncan Selbie: A step on the journey to population health

The NHS plays a part in the country’s wellness – but it’s far from being all that matters. Duncan Selbie, chief executive of Pu... more >
Cutting through the fake news

22/11/2017Cutting through the fake news

In an era of so-called ‘fake news’ growing alongside a renewed focus on reducing stigma around mental health, Paul Farmer, chief exec... more >
Tackling infection prevention locally

04/10/2017Tackling infection prevention locally

Dr Emma Burnett, a lecturer and researcher in infection prevention at the University of Dundee’s School of Nursing and Midwifery and a boar... more >
Scan4Safety: benefits across the whole supply chain

02/10/2017Scan4Safety: benefits across the whole supply chain

NHE interviews Gillian Fox, head of eProcurement (Scan4Safety) programme at NHS Supply Chain. How has the Scan4Safety initiative evolved sin... more >
Simon Stevens: A hunger for innovation

25/09/2017Simon Stevens: A hunger for innovation

Simon Stevens, chief executive of NHS England, knows that the health service is already a world leader when it comes to medical advances – ... more >