Financing PACS in New Ways

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In a report prepared by the Healthcare Financial Management Association in partnership with GE Healthcare Financial Services and PricewaterhouseCoopers released last year, 72 percent of hospital CFOs anticipated increases in capital expenditures over the next five years, with not-for-profit hospitals more likely to increase their capital budgets than their for-profit counterparts. At the same time, 61 percent of the CFOs in the sample revealed they were planning to purchase major IT systems over that same time span.

Picture archiving and communications systems are no longer considered superfluous - nor just the need of large, academic facilities or mega-large imaging centers - as their capabilities have increased to place them in a key role to high-quality patient care for nearly any size facility and an enterprise essential. Several driving forces have contributed to this paradigm shift, including the need for increased efficiency for the ever-dwindling number of radiologists, HIPAA regulations that require long-term archiving and disaster recovery plans, the distances between institutions within a healthcare system and the want for more interactive, faster conferencing with specialists that necessitate the sharing of digital images. So then the question remains - how to finance these essential components to the entire healthcare enterprise.

Traditional models of funding capital expenditures through fundraising, borrowing the money or issuing tax-exempt bonds have now been joined by new approaches that have been designed to reduce the financial burden of implementing PACS when institutions lack up-front resources.

Philips Medical Systems, for example, has adopted a menu-like approach to these issues tailored to the hospital's ability to pay, intended to facilitate long-term relationships including financing through their capital leasing programs, or traditional purchase configurations.

Their latest offering includes an ASP (application service provider) model where they charge a specific price per imaging study, based on a five-year contract. Christopher Click, Philips' director of radiology IT, explains that in this model, they calculate the value of the offering solution, divide it by the number of months in the contract time and then scale the payment based on the customer's means. This approach supports either a "back-end" load so that the payments are smaller as the contract begins, and then grow as the contract matures, or conversely, a "front-end" load if the hospital has capital available, with gradual reduction in payments as the contract matures.

GE Commercial Finance Healthcare Financial Services (Chicago) has developed an innovative product for the 75 to 80 percent of healthcare facilities that qualify as 501(c)(3) not-for-profit institutions.

Besides providing traditional loans in the purchase of equipment and systems, Deborah McLennan, market development manager in this division of GE, describes TECn which stands for Tax-Exempt Capital to the nth Power as an alternative to hospitals that usually would issue tax-exempt bonds for their capital expenditures. This program provides the same benefits in terms of interest rates and length of financing term, but is less expensive and less time-consuming than the traditional methods required in the issuing of tax-exempt bonds because GE provides in-house underwriting and the hospital is not required to pay numerous fees typical from a third-party bond underwriter.

In their traditional lease financing model, GE suggests that hospitals are generally better served by eventually owning their IT system, because removing these types of infrastructure components can prove burdensome.

Siemens Medical Solutions provides a number of financing options for PACS as well. Working from an assumed cost of $10 to $15 per sheet of film, Henri "Rik" Primo, director of marketing and strategic relationships, explains that an operational lease that is based on that same expense per study, will eventually return the investment.

For example, with an operational lease based on 100,000 procedures and one film per study, it would cost $1.5 million in film costs. Applying those expenses to a PACS purchase or lease would provide a fairly robust system, and a PACS costing $3 million would be very large. One caveat to this approach is that institutions should include the cost for upgrading hardware and software to maintain a system that is current. Generally, if an institution sets aside an