Ticket to Affordable Healthcare
When Changchun Orthopedic Hospital Wanted to Improve Service to the Local Population, Healthcare Leasing Was the Answer
More and more Chinese patients are receiving treatment in private clinics. However, hospitals in China often cannot obtain loans to purchase imaging technology. In order to be able to use new equipment, clinics turn to leasing models from Siemens Financial Services.
The Changchun Orthopedic Hospital (COH), located in the Jilin province in Northeastern China, would like to order two computer tomographs, a magnetic resonance system, and three X-ray units. The total price tag will amount to several million Chinese yuan. However, as was the case with its previous Siemens orders – totaling 31 million Chinese yuan (approx. 5 million U.S. dollars) – the hospital wants to lease the new equipment.
An Alternative to Purchasing
Chen Yang works for Siemens Financial Services (SFS). SFS helps Chinese hospitals finance new equipment. Most private clinics are like COH in one respect: They decide not to buy imaging equipment but to lease it instead. This means that they can pay off the purchase price in installments spread out over several years. China’s financial leasing market is enjoying double-digit growth rates. On the whole, the growth of the healthcare sector is not the only reason for this. China’s government is tightening credit. Chinese banks are thus currently more reluctant to lend money than they were in past years. When they do provide loans to the healthcare sector, it is primarily to state-run facilities. Consequently, most private hospitals have to find financing elsewhere. Leasing is a good alternative for many institutions, although it appears to be slightly more expensive at first glance. This financing model enables customers to manage cash flows more flexibly.
“Setting up long-term partnerships with hospitals such as COH is crucial, but at the same time difficult,” Chen Yang says. “COH received several financing offers from our competitors when it was in the process of buying healthcare equipment from Siemens for the first time. To secure the deal, we commuted between Shenyang and Changchun many times to discuss and understand COH’s exact requirements. As a result, we were quickly able to design a tailor-made leasing solution,” adds Chen Yang.
Real Value for Money
“Of course we negotiate the price every time we discuss new equipment,” Chen Wei, COH’s director, says. “I receive offers from banks and other leasing companies, but price is not the only factor that is important for us. We are really looking for a long-term, reliable partner to provide the best service overall. So we consider speed, convenience, and people. Siemens is quite simply a company you can trust and that meets expectations.” He adds that, “the leasing solution from Siemens will actually cost me a bit more compared to the traditional mortgage loan, that’s true. But with an SFS lease I’ll receive everything from a single source – the equipment and the financing. I think that’s real value for money, and that’s why I’d like to continue working with Siemens and SFS in the future.”
Since China does not have a central register with reliable assessments of customers’ credit ratings, being able to make an offer to a potential customer quickly is not an easy task for Chen Yang and his team. Therefore, he needs to make a sound estimate as to whether the use of equipment will pay off for a prospective customer – that’s what ultimately determines whether they can pay their leasing installments.
Long-Term Business Models
One source of information for the SFS risk team crunching the numbers is hospital financials. Industry experience plays an important role, too: What equipment does the customer want? How many beds does the hospital have? How big is the catchment area? What is the average income of the patients in the catchment area? Assessing creditworthiness is much easier of course, when dealing with a repeat customer, like COH. The people who are negotiating the deal know, appreciate, and trust one another. Also, COH has a positive track record with SFS. What’s more, it has big plans for the future. “We want to expand within our home province of Jilin. But we’re also building clinics in other parts of the country that are in need of specialized clinics: in Xi’an, in Kunming, and in Haikou,” says Chen Wei. COH is targeting the market segment for highly specialized orthopedic clinics, which is growing especially fast.
Overcoming the Lean Period
Chen Wei says that, in spite of the current “gold rush” mood in the private healthcare market in China, he is not out to make quick profits. “Orthopedic clinics require particularly high initial investments. Over the course of time, however, these are balanced out by higher margins, making such clinics very interesting in the long run. But at first there are often challenges, and that makes many investors hesitate. With a strong and reliable partner such as Siemens, we can get through this lean period much better,” he says.
About the Author
Dr. Andreas Kleinschmidt has been writing on innovation topics for more than ten years. In 2005 he received the CNN Journalist Award for a radio feature from Russia. His degrees include one in International Political Economy from the London School of Economics. He works for Siemens Corporate Communications in Munich.