Specialized Leases from Elekta Facilitate Sharing of Financial Risk and ReturnAfghanistan — Wednesday, March 25, 2009
Atlanta, GA, March 26, 2009
Hospitals and health systems are facing a “perfect storm” as traditional financing options close, revenue is squeezed by layoffs and federal cuts, and investment income dwindles. Complicating the situation are competitive pressures, not only from other medical facilities, but from new entrants into the market such as standalone treatment centers.
Elekta Inc., an international leader in oncology and neuroscience solutions, is seeing new demand for its alternative financing solutions in this difficult economic environment. GK Financing L.L.C., a joint venture between Elekta and American Shared Hospital Services, provides alternative financing for projects involving Leksell Gamma Knife® and Elekta Axesse™ radiosurgery systems, including revenue-sharing and fee-for-service leases.
With GK Financing, a hospital does not own the equipment, but rather enters into a Services Agreement (the “Lease”) and starts benefiting immediately from using Elekta’s radiosurgery solutions. The Lease defines how revenue is shared, the obligations of the parties, and the options available to the hospital at the end of the Lease.
Tufts Medical Center in Boston partnered with GK Financing to install its Gamma Knife from Elekta. “At the time of our Gamma Knife installation, we were facing capital constraints and wanted a partner who could share the risk and help us upgrade the equipment when needed,” says Denise Schepici, Senior Vice President of Clinical Services at Tufts Medical Center. “In light of the current financial crisis, we’re glad we were able to spend less upfront and still offer the technology we needed to stay competitive.”
“We began seeing an increase in interest in alternative financing over the past year, but it has accelerated since the credit markets tightened,” says Craig Tagawa, who is Senior Vice President of American Shared Hospital Services and has served as CEO of GK Financing since its inception in 1995. “Using a service like GK Financing allows a hospital to obtain the equipment they need to provide the best possible care for their patients and remain competitive, without waiting – perhaps years – for the available capital.”
Mr. Tagawa goes on to cite a number of forces creating financial difficulties for hospitals. “Hospitals have seen their investment portfolios decline, potentially creating debt covenant issues, which could impact their access to capital. We’re also seeing hospital margins coming under pressure due to an increase in uninsured patients, in part due to rising unemployment.”
Hospitals have traditionally had a number of sources for capital, but bank loans and credit lines have become increasingly difficult to obtain. And a study by the Financial Leadership Council of The Advisory Board Group showed that the yield on A-Rated, tax-exempt hospital bonds has jumped from 5.25% in December 2007 to 8.50% (as of December 19, 2008). Little wonder, then, that financial challenges continue to rank Number 1 on the list of hospital CEOs’ top concerns in 2008, according to the American College of Healthcare Executives’ (ACHE) annual survey of top issues confronting hospital CEOs.
Turning to alternative financing can offer benefits for everyone involved, says Mark Symons, Senior Vice President of Elekta’s Neuroscience business unit. “This approach to financing new services can add a useful component for managing a hospital’s total investment risk. If they are risk averse and/or access to capital is limited, alternative financing lets hospitals implement a service when they – and their patients – need it.”