As PASA is dismantled,
leasing companies may see NHS business finally achieve its
potential – but with a number of them withdrawing from the health
care sector, who will be around to reap the benefits? Fred Crawley
and Jason T Hesse report.
With the UK’s National Health
Service (NHS) restructuring its purchasing procedure in order to
make ends meet in an impending budgetary crisis, the next few years
may see a vast upswing in leasing business – if the new
organisation promotes more centralised decision making, that
is.
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A report published by the NHS
Confederation in June warned that Britain’s health service would
face its greatest ever financial shortfall in the three years
following 2011, in the order of £8 billion to £10 billion (€9
billion to €12 billion).
A gaping wound
David Nicholson, the chief executive
of the NHS in England, has warned the service that patching this
wound could demand efficiency savings of up to £15 billion.
Part of this process will be the
dismantling of PASA, the NHS Purchasing and Supply Agency, expected
to be completed midway through 2010.
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By GlobalDataIt is thought that elements of PASA
will be transferred to Buying Solutions, the UK government’s
executive agency dealing with the management of procurement for the
public sector.
Leasing, interestingly, has gone
somewhere else – from 1 September 2009, responsibility for leasing
at the NHS will pass from PASA to public/private joint venture NHS
Supply Chain.
NHS Supply Chain, part-owned by German
logistics company DHL, will also take charge of the national
framework for operating leases, which is scheduled to run until
March 2010.
According to the NHS, Supply Chain is
“a 10-year contract, operated by DHL on behalf of the NHS Business
Services Authority”, tasked with procurement and delivery of
products to trusts and hospitals.
It is intended to save £1 billion on
procurement costs over its life span, which began in September
2006.
These savings are a consequence of
DHL’s bulk buying power, which drives down the price of goods
purchased.
Jonathan Evans, national line manager
for health care at De Lage Landen – which has much of its UK health
care business written with NHS – said he had not yet met the new
organisation, but was positive about the possibility of a more
centralised approach to leasing.
Currently, most leasing decisions are,
in practice, made by financial directors at trust level, depending
on particular local budgets and equipment costs, and there is a
perception by many that operating leasing is growing more slowly
than it should.
But it looks like this will
change.
Changing could provide
benefits
Siemens Financial Services’ general
manager of public sector business David Martin thinks a rise in
asset finance is on the way, and attributes this to the accounting
benefits of operating leases.
“Quite simply, it’s because an
operating lease is classified as a revenue expense,” he said.
“If it’s a revenue expense, trusts do
not have to use their own capital receipts to invest. As budgets
get cut going forward, operating leasing is going to play a major
part in how the public sector acquires the assets needed to run
day-to-day services.”
Ken Hunnisett, a director at Cranmer
Lawrence, agrees: “Most of the kit coming out to tender really does
lend itself to operating leasing – we’re not seeing an abated
appetite for operating leasing at all.”
The FLA certainly sees opportunity
looming – it is known to be looking at the NHS as an area where
asset finance and leasing can help to build efficiencies, and is at
the early stage in the preparation of a document for government
attention that outlines the strategic and operational benefits of
asset finance.
This document is understood to present
the advantages behind several different forms of finance, from the
cost benefits of simple operating leases to complex, structured
deals that begin to take on elements of project finance.
A decline in lessors
Sadly though, if the next few
years see a big rise in NHS lease business, there will be far fewer
lessors around to reap the benefits. Bank of Scotland withdrew from
the market in March last year, while Alliance & Leicester
withdrew from operating leasing in July, despite remaining active
in private finance initiative and contract hire.
Close Asset Finance, despite being a
smaller player in the sector, also pulled out of NHS business.
Kaupthing Singer & Friedlander’s current status is unclear, but
it is understood to be active.
The most recent market exit was CIT’s,
as the lessor pulled out of health care in February, putting its
€18.5 million lease book on sale soon afterwards.
Those leases were bought in July by De
Lage Landen, pushing the Dutch lessor’s UK health care portfolio
beyond €100 million.
A spokesperson for De Lage Landen
commented: “De Lage Landen is very well positioned to grow its
health care business in the UK.”
He added: “Leasing will remain
important for the NHS, and as capital comes under pressure,
alternative routes such as operating lease will become more
prevalent.”
David Martin at Siemens Financial
Services in the UK had a similar outlook, saying that the public
sector in general was a good market to be in, and that demand was
“buoyant”.
“Over the past 12 months, business
volumes and opportunities in the public sector have increased for
the financial services market, it’s been very positive,” he said,
but he also warned that in the long term NHS trusts could face
challenges with budget cuts.
Hunnisett at Cranmer Lawrence felt
that this would not necessarily prove to be a problem, since his
company’s strategy is to focus on assets providing essential
services, rather than discretionary services, thus providing a safe
niche.
“I don’t think [public sector spending
cuts] will affect the way people are treated in hospitals, or how
the rubbish gets picked up from our doorsteps,” he said.
“A large proportion of our book
comprises infrastructure assets deployed in the delivery of
essential public services which, if anything, are in greater demand
in times of recession.”
