Hospitals have less cash to spend on large capital medical equipment. How are medtech companies adjusting?
As hospitals battle another surge in COVID-19, medical device companies have to worry about more than temporary reductions in elective surgeries.
Hospitals struggling to account for every dollar are beginning to push for different ways to select and pay for new medical technology, particularly large capital items like robotic surgery systems, according to a review by a consulting group affiliated with the healthcare organization, Vizient.
In this week’s DeviceTalks Weekly podcast, Henry Soch, VP at Sg2, a Vizient consulting group, described capital budgets for most healthcare organizations as “very constrained,” making it difficult for hospitals to commit dollars for large capital purchases. In addition to their diminishing revenue, hospitals also are spending up to 75% of capital dollars on updating technologies to accommodate the growing need for telemedicine and other remote connections, leaving less for new medical equipment.
“Available capital dollars to purchase technology is probably tighter than we’ve seen it over the past several years,” Soch said. “And I would expect that to continue throughout 2021.”
But hospitals still have an appetite for new tech. They’re just trying to find ways to “get the dollars away from capital budgets to the operation side,” Soch said. (Go here to hear the interview.) To do this, hospitals are showing a stronger interest in subscription-based models that allow them to pay for large capital investments over longer periods of time. “They have to start thinking in terms of recurring revenue as opposed to a transaction,” Soch said. “A lot of major vendors are kind of moving in that direction and understand that.”
In the same podcast, Kaila Krum, managing director of Truist Securities, said analysts are seeing medical device companies adopting more flexible payment arrangements, including volume commitments and leasing agreements. “In part, that’s probably what’s driving some of the recent strength that we’re seeing in ortho robotics. Stryker had a great quarter and specifically called out their MAKO robotic system as a driver.”
Krum said Stryker could set a record for MAKO placements. Globus Medical is having a similarly good year placing its Excelsius GPS system, she said, noting that the company placed more robotic systems in October than it did in the third quarter of 2019. Zimmer Biomet also is reporting strong sales for its Rosa system. Krum said many of these placements involve leasing.
Leasing agreements are attractive for medical device companies, bringing a source of recurring revenue. Before COVID-19, they might have preferred to be paid upfront. “But I think they’re becoming more open to these flexible arrangements,” Krum said.
The slowing trickle of revenue will continue to challenge device makers as COVID-19 rages on. Another potential hurdle to sales will be getting the attention of the administrators who are taking a dominant role in large capital purchases for hospitals.
“Right now [administrators have] got their heads down… trying to do the clinical work of treating patients in a resurging COVID environment,” Soch said in the podcast. (Go here to hear the comment.) “So, honing your message so that it’s crisp and that the value proposition is clear is going to be critical because your ability to get face time via Zoom or however that happens these days and get the attention of the executive team is going to be limited.”
