Enabling the transformation of healthcare - Innovative solutions for healthcare financing

White Paper Enabling the transformation of healthcare Innovative solutions for healthcare financing siemens-healthineers.com/value-partnerships SIEMENS Healthineers White Paper · Enabling the transformation of healthcare Executive Summary The use of medical technology in care pathways is expected to continue its upward trend. Accordingly, medical technology investment is expected to require an increasing proportion of healthcare providers’ budgets. The pace of technological advancement can put healthcare providers in a bind: they want access to powerful diagnostic and therapeutic technologies, but they also want to avoid the financial risk of technology obsolescence after initial acquisition. Against this background, many healthcare providers are looking to unlock “frozen” capital by shifting medical infrastructure investments from one-time capital outflows to financial arrangements that are more aligned with their projected revenue streams. A number of innovative business and financing models have thus been developed to allow healthcare providers to do so, while also retaining flexibility to upgrade technology, reduce financial risks, improve performance, gain access to medical innovations, and simultaneously unlock value that would otherwise be frozen in large capital outflows. As a result, medical technology manufacturers need to deliver far more than just hardware and software to help healthcare providers compete in increasingly complex and competitive healthcare markets around the world. Financing services, within the context of an enduring, comprehensive agreement, are a key way to add value to partnerships with healthcare providers. Moreover, healthcare projects in developing countries face additional challenges and opportunities, including substantial healthcare infrastructure gaps and limited access to financing sources due to the perceived credit risk. Effective healthcare partnerships enable healthcare providers in these countries to create “bankable” projects whose underlying business models result in increased efficiency and effectiveness of the healthcare infrastructure. We at Siemens Healthineers understand this need and are uniquely positioned to support our partners by directly financing their projects or by helping them secure third-party financing. Financing is a key enabler of our Value Partnerships, long-term performance- oriented relationships between healthcare providers and Siemens Healthineers. Value Partnerships can help transform care delivery and enable healthcare providers to increase the clinical, operational and financial value they provide. By shifting financial outflows from capital expenditures to operating expenses, these partnerships can help healthcare providers unlock “frozen” capital that can be used to improve the quality and value of the care they deliver. 2 Enabling the transformation of healthcare · White Paper Contents New business models enable new flexibility in healthcare 5 Business models 6 Unitary payment model Pay-per-use model Subscription model Performance-sharing model Putting it all together 8 Enabling transformative growth of a healthcare system 9 Enabling new value in healthcare through Value Partnerships 10 Case studies at a glance 12 Conclusion 14 Read more 15 3 White Paper · Enabling the transformation of healthcare Financing is a key enabler of Value Partnerships + + O O Infrastructure .... 148 99 - 97% $ Technology Skills 4 Enabling the transformation of healthcare · White Paper New business models enable new flexibility in healthcare Financing, to healthcare providers, is a means to an end rather than the end itself. Healthcare providers are looking for partners who help them optimize their current operations, expand their capabilities, and advance the pace of innovation within their institutions. That kind of partnership can be a transformational undertaking, requiring years of effort and substantial financial investment to achieve. That’s when innovative business and financial models come into the picture – they can be important enablers and accelerators of long-term transformation for healthcare providers. Because every healthcare provider faces different pressures and opportunities, no two financing solutions are identical. Each solution needs to be custom built around the provider’s specific near- and long-term context and in line with the desired risk-benefit allocation between the contracting partners. This risk-benefit profile is subsequently reflected in the payment model embedded within the financing solution. Below are examples of payment models that are typically included in larger, more complex transformational projects. 5 White Paper · Enabling the transformation of healthcare - Time 1. Unitary payment model EUR / $ What is it? Capital investments and service fees rolled up into a regular flat fee This is an easy-to-understand model that involves bundling equipment, maintenance, operations-related expenses, and ongoing consulting services (e.g. technology management, Who’s it for? managed departmental operations) in single fixed payment Providers seeking long-term, predictable over regular intervals. This solution is attractive for financials that are aligned to technology availability organizations that want to avoid heavy up-front capital investments. One of the key advantages of unitary payments arrangements is that they free up “frozen” capital – funds Key advantages • Financial stability/predictability that would otherwise be tied up in technology purchases – • Simplified vendor relationships so that it can be used to fund other important initiatives, • Partnership with a leader in technology like expanding clinical capabilities, hiring new talent, management training and retaining staff, and investing in new technology to improve the quality and efficiency of care. Unitary payments give healthcare providers financial predictability, allowing them to plan for sustainable growth. Additionally, a flexible partnership arrangement will allow the healthcare provider to change the scope of the contract – and thus, potentially, the regular payment amount – in order to optimize financial health while adapting to new circumstances. Time 2. Pay-per-use model EUR / $ What is it? Payment per scan/test/report This is a payment model including variable payments where a healthcare provider pays a given fee per use of a medical Who’s it for? technology asset. Cost-per-result arrangements, often seen Providers who prefer a variable-cost base, in diagnostic laboratories, are a variation on the pay-per-use and are seeking partners that will invest in model, where healthcare providers only pay for evaluable the partnership in exchange for equity-like results. Some providers prefer variable-cost models, where returns incoming and outgoing cash flows are aligned and operational risks are shared with medical technology Key advantages manufacturers. • Avoids up-front capital expense • Allows alignment of revenue to expenses Fixed payment Variable payment 6 Enabling the transformation of healthcare · White Paper 3. Subscription model Time EUR / $ What is it? A hybrid between unitary and pay-per-use payment A fixed payment model, up to a arrangements, the subscription model allows for a fixed predetermined volume, after which monthly payment up to a specified volume. Additional uses overages apply beyond the contractually specified volume incur overage fees at agreed-upon rates. This arrangement provides a mix Who’s it for? of financial predictability and flexibility to adapt to changing Providers who prefer operating vs. capital patient volumes. budget Key advantages • Helps optimize CAPEX and OPEX allocations • May include guaranteed access to innovations at no additional software and support fee 4. Performance-sharing model ..... Time EUR / $ What is it? Simply put, performance-sharing contracts tie suppliers’ Arrangement that ties payment to compensation to the performance of a given asset or predefined key performance indicators service. Upon reaching specified Key Performance Indicators (KPIs), performance-based incentives are triggered. These Who’s it for? contracts are structured such that reaching the agreed-upon Providers seeking partners for ambitious KPIs is mutually beneficial, thus encouraging the partners to quality and efficiency goals pursue these goals. Key advantages • Having “skin in the game” ensures that partners work to continually improve performance and share operational risks 7 White Paper · Enabling the transformation of healthcare Putting it all together The payment models described above are only a small Siemens Healthineers financed construction of a new part of the story. An effective partner has the expertise operating room and nuclear medicine facility, in addition to take a deep dive into a healthcare provider’s financial to managing and financing their medical technology situation and create innovative, customized financing assets.” This unitary payment model arrangement has solutions that enable them to pursue their goal of delivered benefits to both healthcare providers and delivering top-quality care to the patients they serve. patients, who now have cutting-edge medical services much closer to home than previously. Sometimes special circumstances require unique solutions. Jelle Job van Bergen Bravenboer, Manager Clearly, a technology partner that can evaluate the Finance and Control at Siemens Healthineers Enterprise financial viability of a project holistically, instead of just Services, recounts an ambitious project with a long-term looking at credit ratings, can be a great match for partner in the Netherlands: “This institution was having institutions with strong fundamentals. The ability to trouble getting financing. So we did our due diligence create strong partnerships and develop innovative and came to the conclusion that they would have enough financing solutions is thus a key cornerstone to enabling patients and treatments, and therefore enough revenue the success of healthcare providers in a variety of to fund the kind of expansion they needed,” van Bergen financial situations and geographies. Bravenboer said. “We ended up with a contract where Unitary payment Subscription model model + ..... Pay-per-use Performance-sharing model model 8 Enabling the transformation of healthcare · White Paper Enabling transformative growth of emerging healthcare systems Developing countries often face special challenges when proposed solutions are right-sized for the context in it comes to large-scale healthcare projects. Risk-averse that country. Mwagiru describes a common challenge lenders may shy away from financing these projects for healthcare provider organizations in developing because of concerns over the long-term sustainability of countries. revenue generated from new construction, technology replacement, and other capital-intensive transformations. “In the case of medical technology, often the wrong These concerns are often misplaced, as financiers may equipment was purchased, clinical staff has been lacking not look deeply enough into the fundamental challenges or has lacked the right skill-set, maintenance contracts and opportunities in such locales. On the other hand, were absent, hospital construction was delayed, or given their deep expertise in medical technology, med simply, the electrical connection was unstable. In some tech manufacturers are uniquely positioned to take a cases, developing countries were used as a backyard for different perspective when it comes to medical ‘dumping’ outdated medical equipment. While this might infrastructure projects. And it’s worth pointing out that a sound like a disaster, in reality, these hurdles have strong med tech partner can view financing as a means created a substantial opportunity for Public-Private of enabling an operational partnership, rather than the Partnerships and new business models. Through these end goal, as it would be for traditional financiers. partnerships, healthcare providers are able to tap into the deep clinical, technological, and business expertise The decision to help finance a project goes beyond a of med tech manufacturers to develop progressive simple credit rating. “There are other fundamental policies, embrace innovative treatment approaches, aspects that are critical to the success of a partnership. optimize resource allocation, and adopt technology Has the country strategically prioritized healthcare? Is it faster – and through this, leapfrog some of the committed to ensuring performance of its healthcare complexities that high-income countries have previously system? This strategic commitment to the performance of faced in healthcare provision,” she said. the healthcare system is a key ingredient of a successful long-term partnership,” said Agnes Mwagiru, Global Asset A Value Partnership can help ensure that proposed Management Services Manager at Siemens Healthineers solutions are right-sized and make sense for the country’s Enterprise Services. current and projected healthcare infrastructure. “One of the key things we do is to help our partners develop A medical technology partner can help guide projects that are bankable, that will pay for themselves development of a robust healthcare infrastructure in and make sense in the larger socio-economic context of developing nations. A big part of that is ensuring that that country,” Mwagiru said. 9 White Paper · Enabling the transformation of healthcare Enabling new value in healthcare through Value Partnerships As healthcare providers continue to see value in shifting cash outflows from capital expenditures to operating expenses, Siemens Healthineers provides several compelling advantages to providers. First and foremost, Siemens Healthineers produces innovative medical technology products and services that deliver real benefits to patients. But there are additional factors specific to financing that make Siemens Healthineers an attractive partner. Robust global footprint combination with headquarter experts ... there shouldn’t Siemens Healthineers is a leading global med tech be a problem which we are not able to solve.” provider, with a direct footprint in 75 countries. We have extensive experience with both public and private In addition, Siemens Healthineers has the backing and organizations around the world, and we understand the support of Siemens Financial Services, a division of unique challenges and pressures that apply in each country Siemens AG. This relationship gives our partners access where we are doing business. That helps us design a to a unique combination of market, technical and financing solution that will enable the implementation of financing expertise. robust transformational development for healthcare providers. And that applies in cases where we aren’t SIEMENS $ $ directly financing–we help our partners work with other Ingenuity for life For additional insights on how $ financing solutions can help $ $ $ financiers to get the right technology, services, and $ facilities in place. By bringing in this expertise, our Value unlock “frozen” capital, read Teal dark Teal light Blue lightBlue dark Red dark Red light Teal dark Teal light Green dark Green light Blue lightBlue dark Yellow dark Yellow light Red dark Red light Green dark Green light Yellow dark Yellow light Partnerships help healthcare providers to focus on this recent whitepaper from Teal dark Teal light Blue lightBlue dark Red dark Red light Green dark Green light delivering quality patient care. Siemens Financial Services. Yellow dark Yellow light O $ Teal dark Teal light Teal dark Teal light Blue lightBlue dark Teal dark Teal light Blue lightBlue dark Red dark Red light Blue lightBlue dark Red dark Red light Green dark Green light Red dark Red light Green dark Green light Yellow dark Yellow light new.siemens.com/global/ Green dark Green light Yellow dark Yellow light Teal dark Teal light Yellow dark Blue lightBlue dark Yellow light Red dark Red light According to Alexander Raiser, Global Head of Finance, Relieving Green dark Green light Yellow dark Yellow light Siemens Healthineers Enterprise Services, “We enable the pressure en/products/ financing/ How private sector finance can help healthcare providers to realize their vision. By establishing whitepapers/whitepaper- deliver improved patient experiences and outcomes. Value Partnerships with our customers, we find the most relieving-the-pressure.html siemens.com/finance suitable financing solutions, as required by their existing and future needs to unlock additional value.” “Siemens has the unique ability to satisfy two of the most critical needs of healthcare providers: On the one hand, Global tax and financial expertise access to state-of-the-art technology and services, and Siemens Healthineers has a global network of tax experts on the other hand, a full range of financial solutions.” who can make sense of complex local/regional adds Matthias Gelbe from Siemens Financial Services. requirements and enable projects to proceed in “This integrated value proposition – of technology and compliance with all applicable regulations. “Complex finance from a single trusted provider – can unlock real financing is often driven by taxes,” said Raiser. “With this value for the healthcare provider and create opportunities global network which we can provide with legal and to transform their healthcare delivery in a way that other treasury and tax experts in the country and in financial providers would struggle to deliver.” Teal dark Teal light 10 Blue lightBlue dark Red light Red dark Green dark Green light Yellow light Yellow dark Enabling the transformation of healthcare · White Paper Beyond financing: The benefits of partnership with Siemens Healthineers Financing is an important enabler of Value Partnerships, but the benefits of these partnerships go much deeper and are all encompassing. “There was no certainty regarding finance, so we couldn’t be sure if we would be able to replace a CT scanner or not. We needed a flexible program of investment in medical imaging to accommodate changes in need year on year.” Dr. Madeleine Sampson, Clinical Lead, University Hospitals Southampton NHS Foundation, UK A dedicated global team enables healthcare providers through long-term partnerships 20 years of >110 long-term We serve healthcare Over 500 experience contracts globally, providers on dedicated experts in management and execution up to 40 years of contract all continents focus globally on Enterprise of complex projects duration Services projects O O O Unlocking the benefits of partnership with Demonstrated improvement Access to innovations from in operational and process Siemens Healthineers Siemens Healthineers and its KPIs unlocks monetary value business partners O O Workflow Simulation allows Cross-modality research and Reduced financial risk enabled Facility design to achieve the you to predict the impact of collaboration to advance the by unitary payment and optimal environment for patient operational changes in a pace of innovation in healthcare performance-sharing care through a unique protected, virtual 3D institutions agreements combination of architectural environment by forecasting expertise and operational processes and layouts with a medical knowledge digital twin of your institution 11 White Paper · Enabling the transformation of healthcare Case studies at a glance Ommelander Ziekenhuis Groningen (OZG), Netherlands Regional Hospital, 200 beds Challenge Solutions Value Contribution Improve profitability • Siemens Financial Services joined forces • 58 million EUR corporate loan provided Banks were reluctant to fund both new with OZG´s principal bank, ABN AMRP to customer buildings and new equipment to finance the new hospital • 15 years of security for constant • Together, both parties are investing technology updates and upgrades Balance fixed vs. variable costs 110 million EUR in the project for the tenure of the contract Manage to keep capital costs low • The Value Partnership covers the • Financing, equipment and service Reduce risk & act compliantly installation, management, maintenance, from one source Mandatory regular technology service and regular replacement of the relevant medical equipment and its documentation 12 Enabling the transformation of healthcare · White Paper Admiraal De Ruyter Ziekenhuis (ADRZ), Netherlands Private Hospital, 500 beds Challenge Solutions Value Contribution Improve profitability • Design and construction of a building • 10% costs saved compared to all Manage the cost increases in healthcare complex for six operating theaters, alternative solutions proposed in the to remain competitive and attractive including a hybrid OR, with partner last 5 years companies Engie and Jan Snel • > 11.7 million EUR capital freed up Balance fixed vs. variable costs • Under a technology Management through embedded financing solution Handle a major investment without Business model, new ORs are equipped for other urgently needed investments the need for high capital outlay with world-class technology standards to enable up-to-date clinical workflows • Consistent OR and building design for Improve quality of care over a ten-year contracting period optimized patient safety and medical outcomes Design and build six ORs for better • Siemens Healthineers will act as lessor, outcomes & optimized security of leasing both the new building and the patient care medical systems to ADRZ “The Value Partnership gives financial security for the next ten years. This makes life a lot easier and gives energy to focus on healthcare, and that is what we really want.” Gré Schroever, Business Manager for ADRZ, Netherlands 13 White Paper · Enabling the transformation of healthcare Conclusion In the end, offering direct financing and/or financing “Our network of legal, guidance to partners is all about flexibility. We strive to provide our partners with financing solutions that meet treasury and tax experts in their unique challenges within the context of larger socio-political, cultural, and financial dimensions. our local, regional and central Innovative financing models also help mitigate the risk offices presents a vast of technology obsolescence. We can structure long-term knowledge base that we tap partnerships with a built-in technology refresh, so that at the end of the contract term, our partner is not left with into for solutions.... we have aged equipment (which is often the reason they initially sought the partnership). been able to help our Financing is a vital part of Value Partnerships. partners solve a myriad of Siemens Healthineers views financing as an enabler of financial challenges that they these partnerships, not a revenue source. There are cases where we have more or better information compared with were unable to solve via financial institutions because we come from a different angle – with our deep medical technology expertise, we traditional financing models.” are able to make better-informed decisions that are based on a holistic evaluation of the sustainability of a Alexander Raiser, Global Head of Finance, healthcare project. Siemens Healthineers Enterprise Services The combination of medtech expertise, financial liquidity, and passion for creating value in healthcare uniquely positions Siemens Healthineers as a long-term financial partner. Our Value Partnerships are designed to ensure that we not only facilitate access to financing, but rather, Value Partnerships that we holistically enable our partners to optimize, expand, and advance their healthcare systems. This lies at the heart of what it means to truly create value for our partners. Advance We look forward to partnering with you in your journey of healthcare transformation. Expand Optimize 14 Enabling the transformation of healthcare · White Paper Read more from our series on Value Partnerships and how to create more value for healthcare providers: Technology management – Value Partnerships – Healthcare enterprises continually White Paper These game-changers help strive to simultaneously optimize Improving medical technology management healthcare providers meet their operations, expand their through Value Partnerships their challenges by digitalizing capabilities, and advance A new approach for healthcare provider organizations and transforming care delivery siemens-healthineers.com/value-partnerships innovation. Therefore, one of the while expanding precision most critical focus areas is the medicine and improving holistic management of their patient experience. White Paper Value Partnerships: medical technology. A game-changer for healthcare providers siemens-healthineers.com/ worldwide siemens-healthineers.com/ whitepaper-value- How a new concept enables providers to deliver value to all stakeholders whitepaper-technology- siemens-healthineers.com/value-partnerships .... partnerships management .... Healthineers SIEMENS ... Healthineers 6949_CIT13626_ES_Whitepaper_Technology_Management_DD_Print.indd 1 28.01.19 15:54 19-166_7381_WhitePaper_ValuePartnerships_S4_DD.indd 1 07.05.19 16:47 Digital twin technology – Virtualized presentations of White Paper facilities and processes – have The value of emerged as powerful tools for digital twin technology Transforming care delivery in a single department healthcare providers. They can or an entire healthcare enterprise siemens-healthineers.com/value-partnerships reduce the time and expense of piloting different solutions and approaches in the physical world. siemens-healthineers.com/ whitepaper-digital-twin .... 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