Healthcare is experiencing a boom in the Philippines, with the population officially surpassing the 100-million mark and societal changes giving rise to new trends, for instance the growing prevalence of the so-called lifestyle diseases.
With no universal healthcare in place, households account for 56 percent of total healthcare expenditures, with the national and local governments and the state-run Philippine Health Insurance Corp. taking up the rest. As a result, we have seen the opening of a number of new private hospitals in major urban centers nationwide.
Private hospitals are in stiff competition for the growing number of affluent patients, and are thus continually upgrading their medical equipment, particularly capital-intensive computed tomography (CT) scan and magnetic resonance imaging (MRI) machines.
This is where financial leasing can come in. Hospitals need not worry anymore about their equipment becoming outdated and falling behind the competition. With equipment leasing, hospitals and healthcare facilities, for example, can actually hedge against their machines becoming obsolete, as they do not have to worry about disposing of old equipment and raising money for an upgrade. Indeed, why own when you can lease?
Direct purchases prohibitive
In fact, leasing is the standard mode of financing the acquisition of expensive medical equipment. Precisely because of the huge capital requirement for the acquisition of CT scan and MRI machines, hospitals have turned to leasing arrangements with major players such as BPI Leasing Corp. and BDO Leasing and Finance Inc.
A direct purchase is prohibitive, even for large tertiary hospitals. A multinational manufacturer of medical equipment, for instance, requires 50 percent downpayment and the remaining 50 percent upon delivery. Direct purchase terms will have an implication on a hospital’s cash flow, with CT scan and MRI machines costing anywhere from P20 million to P40 million.
“Because of the competition not only among the big tertiary hospitals, even the second-tier hospitals are now refurbishing or rehabilitating, or even buying new equipment. Even in Dagupan (Pangasinan), they are getting high-end equipment, so they can carry sensitive cases. Otherwise the patients will be transported to Metro Manila,” says Roberto Lapid, vice chairman and president of BDO Leasing, in an interview.
Demand for hospital equipment has grown significantly in the past five years, he notes. “We normally finance even the provincial areas for their MRI, CT scan, X-rays, even the automated hospital beds,” he adds.
Leasing will continue to become standard practice with branded equipment makers releasing new models every year and halting support for older models in seven to 10 years.
Lapid says the lease period is usually five years, so hospitals are bound to generate more revenues given the longer economic life of the asset, which could reach up to 20 years. As we have discussed previously, maintenance is not a problem as suppliers usually have maintenance arrangements with third-party entities. Warranties, of course apply.
An equipment upgrade, however, can form part of major hospital renovations, which also require financing. Lapid tells The Manila Times financial “synergies” are possible between commercial banking and financial leasing.
Civil works, for example, can be financed by BDO Universal Bank, while the equipment can be leased through BDO Leasing, Lapid explains.
“If it’s a major renovation they do not only improve their equipment, they also upgrade their facilities. So if that is the case they will go leasing so that they can manage the cash flow, because they have civil works to contend with. So there is a natural synergy between BDO and BDO Leasing,” he says.