John Sparta is President of DLL’s Healthcare Global Business Unit. He is responsible for a portfolio of more than $2 billion as well as annual retail and wholesale new business volume over $1 billion.
John Sparta, healthcare global business unit president at DLL, delves into the reasons behind recent pent-up demand for healthcare equipment, emerging trends in healthcare equipment financing and the digital transformation process of the industry.
Over the past year, we saw rapid acceleration of innovation in the healthcare space. Digitalization and telemedicine solidified their place in a sustainable healthcare model as patients came to expect more convenient access to care. Nearly $4 trillion is spent on healthcare in the US with CMS projecting spending growth of more than 5% annually into 2028. The roughly $200 billion U.S. medical device market is expected to likewise grow at a similar rate. Through 2022, we expect patients to continue to demand more control and transparency in the healthcare system, personalized care and increased connectivity. For healthcare vendors, there is ample opportunity to deliver on these patients’ demands, remain connected to customers and improve the quality of care.
Pent-Up Demand for Healthcare Equipment
Over the last couple years, many healthcare providers have had a tendency to keep equipment in place longer. Several factors have contributed to this, including a desire to preserve more capital amidst the most recent economic uncertainty, and software updates extending the useful life of assets.
Though most recently, concerns over supply chain challenges and availability of equipment have also driven customers to hang onto existing equipment. For leasing companies and vendors, however, this presents an opportunity to remain connected to the customer longer.
To paint an example, consider a vehicle dealer. The finance contract in place on leased vehicles provides the dealer with more control and several options. If a dealer is low on inventory, one option the dealer may have is to repurchase the vehicle. Particularly if the vehicle is in good shape, it can be resold or re-leased at an even greater profit. Another option the dealer has is extending the lease on the customer’s existing car, allowing them to remain connected to the customer for a longer period. These options provide more opportunities for the dealer than for comparable cash customers – and likewise the lease customer benefits from similar flexibility. These principles similarly apply when considering medical devices instead of cars, and remain particularly important as we move into the new year.
While future supply chain challenges remain uncertain as we move into 2022, eventually we can anticipate a return to normal, the Omicron variant notwithstanding. While Covid has proven impossible to predict, we do know that routine and elective surgeries are happening and in-place equipment isn’t getting any younger. Meanwhile, we see healthcare providers dealing with labor shortages and overall higher labor costs. With CARES Act funds set to expire, cash will continue to be at a premium while providers still need to address their mission to the communities they serve beyond the pandemic. As supply chain constraints ease and the economy normalizes, we expect to see an uptick in customers looking to replace older healthcare equipment by financing new assets.
As we’ve seen over the last several years, we expect patients to continue demanding increased convenience and easier access to care. After experiencing a boom during the pandemic, telehealth will remain a must-have with adoption rates remaining significantly higher than pre-pandemic levels. According to McKinsey, telehealth utilization is 38 times higher than pre-Covid levels, with between 13-17% of all office and outpatient visits happening virtually. Even with patients returning to in-office visits, virtual options have expanded access for patients who would have more difficulty seeing a doctor in-person.
But in addition to virtual care, we expect further changes in physical healthcare delivery to allow for greater flexibility and patient access. Within the hospital setting, we expect to see increased investments in areas that allow for more modularity, giving them the ability to quickly adapt spaces for different uses based on case load and patient census. Some examples include modular walls, ceilings and doors that can be easily disassembled and reconfigured.
While we have already seen care delivery for certain specialties shifting away from a hospital setting, we expect this to remain a growing area. We will continue to see more care moving to outpatient settings, as well as a rise in mobile hospital services. For example, a healthcare system that only offers mammography services in limited brick and mortar locations may deploy a mobile mammography van to expand access to underserved areas.
Moving away from traditional financing nomenclature to customer solutions – we expect to see a continued rise in requests for bundling service, supplies and support with equipment, as well as more simplicity in contracts. Just as patients are seeking more convenience, our customers are seeking more ease in doing business. Bundling service with equipment offers more predictability around budget, reduces the risk of equipment downtime and offers easier monthly payments that include maintenance.
But, the contracts must be simplified, fast and easy. Customers don’t want pages upon pages of fine print – straightforward, fast and digital contracts are the way forward.
Evolution of digital transformation
To meet the demand for more convenience and simplicity, the healthcare industry must continue to push forward with digital transformation efforts. While this transformation was required of all industries with the onset of the pandemic, the healthcare industry still lags behind – though we are seeing steady forward progress.
There is vast potential for preventive care to be improved as more patients take advantage of digital services and connectivity. For example, patients today can purchase a personal EKG monitor on Amazon for less than $100 that connects to their phone. Patients can easily perform EKGs every day, from anywhere, and immediately share the results with their doctor.
With an aging population, more emphasis on easy solutions for preventive care can ease constraints on the healthcare system. It also increases information available to doctors, enabling them to be better informed in making diagnoses. This increase in patient connectivity and information may also lead to more scans and tests, making it even more imperative for hospitals and healthcare systems to have the right equipment in place.
Amidst the rising demand for digital services, the equipment finance industry must evolve to best support customer interactions. As consumers, we expect fast and easy – we can order a pizza any way we want it in 30 seconds through an app on our phones and track its progress to our front door. This demand translates to business expectations, as well.
We must improve the ease of doing business through streamlined digital solutions and reduce the complexity of acquiring capital equipment. The easier we can make the financing process to compete with cash, the more penetration leasing companies can see in the healthcare space as customers and patients expect more convenience and simplicity.
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