Myhre agreed, noting that while Wells Fargo is already active in this area, it is very different from traditional equipment finance. It is more like “unsecured” finance, he said. To succeed one needs good cash flow, a strong vendor partner and good structure.

A relationship approach gives SFS an advantage, Drake said. “We talk to medical providers and understand their challenges and strategies.” He described meeting with hospitals not to sell something, but rather to listen to their executives and then offer help. Offering a broad array of financial products is also an advantage, beyond equipment finance to real estate, or even de novo project funding.

“Larger hospitals are also getting EHR systems into physicians’ hands, not only to promote ease of use, but also to spread influence and create deeper relationships,” said Todd Skulte, general manager of the structured solutions group at GE Capital Healthcare Financial Services (HFS). He said it is more attractive for financing companies if a hospital drives a systems program upgrade and ties in with the physician community. Manufacturers, likewise, are working to ensure various technologies and software programs used by healthcare professionals are compatible with those found in hospitals.

“We’re seeing projects in the range of $80 million — the numbers can be staggering,” Skulte said, and added that the challenge for financing companies is such projects can take a long time to finalize and involve a significant amount of software. The actual hardware is decreasing in value, so the financing focus is at the top of the credit spectrum.

Raymond Grahe, CFO of Washington County Health System in Hagerstown, MD, said his 280-bed hospital is affiliated with 45% of the area’s primary care doctors and they will be upgrading legacy systems that integrate into a future EHR system. Grahe was planning to issue bids for financing.

Niche Players
Some of the niche players in this market that attended the conference included Canon, Olympus America and Stryker. Richard Hardt, director of risk management for Stryker Finance, a division of Stryker Sales Corporation of Kalamazoo, MI, said expansion is anticipated in several of Stryker’s businesses. Growth in Stryker’s orthopedics division, in particular, is expected to be strong given the aging American population. Stryker manufactures hip and knee joints, as well as items used in spine and skull surgeries.

Stryker offered leases to customers in partnership with large financial institutions in the past. In 2006, the company formed a financial arm to give customers a Stryker-like experience, “Our job is to sell equipment, so customers enjoy the benefit of all of the pricing we can get out of the marketplace. Financing is not a profit center for Stryker,” Hardt said.

“We think we are giving customers a better experience and providing some very competitive financing. We don’t care if it is a lease or loan. We’ve developed some unique leasing programs that would not be available if we were dealing with a large financial institution,” he explained. These include upgrade programs, or very short terms including 12-month leases. Powered surgical equipment, navigation equipment, endoscopy and other equipment types used in operating and patient rooms are financed by Stryker.

Business has been strong, with sales up a couple of percent last year. Hardt added sales are doing very well in the first quarter of this year. Hardt admitted the company does see a hesitancy to make long-term financing commitments among its customers, some 4,000 hospitals in the United States. He is not surprised, given the turmoil surrounding healthcare reform, which has created considerable uncertainty.

Imaging Niche
Doug Lynch, a senior vice president with GE Capital HFS, said he sees savvy hospitals are increasingly partnering with such healthcare “entrepreneurs” as imaging centers. He also reported that the imaging center space has historically been good for GE but, in anticipation of the federal Deficit Reduction Act, the company proactively became more conservative in this market.