Transformative Business Strategies Present New Growth Prospects for Medical Device Leasing
Vendors' integration of support services and shift from product-centric to value-oriented business models will improve ROI and margins for healthcare providers
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Globally, hospitals and health systems face financial pressure caused by high operating and administrative costs, declining revenue and reimbursement rates, and the increasing cost of both medical devices (due to technology advancements) and infrastructure. The COVID-19 pandemic has intensified this financial crisis as patient volumes dropped and negatively impacted revenues further. In spite of these challenges, hospitals must invest in technology that improves operational efficiency and patient outcomes. State-of-the-art technology attracts more patients and helps hospitals recruit or retain skilled clinicians by improving their capability and motivation. However, many hospitals and health systems aim to preserve cash, making them risk averse to funneling significant amounts into capital equipment that is prone to obsolescence. Consequently, hospitals are in need of alternative financing or procurement options. This need is driving innovative supply models such as leasing among medical device OEMs and leasing companies.
Leasing models position hospitals to procure advanced equipment while conserving cash, with the option of owning the devices or renewing the contracts at the end of the leasing term. Moreover, some medical device OEMs are improving medical device affordability for hospitals through innovative financing; others are partnering with third-party financing companies to design customized financial solutions. Innovative sales models like leasing not only improve device adoption among healthcare providers but also improve revenues for OEMs and leasing companies through the introduction of value-added offerings. In developed markets like the United States, as providers face increasing pressure from payers to contain costs via value-based reimbursements, providers demand that medical device vendors share the risk and offer improved value beyond their products.
Leasing catalyzes the creation of new opportunities for vendors to introduce service-based business models such as inventory optimization and asset management, predictive maintenance, and equipment life cycle management. Medical device leasing enables hospitals in developed markets to improve device efficiency by passing on the risk of equipment downtime to vendors and freeing them to focus on core clinical goals while improving patient outcomes. In emerging markets, leasing creates improved access to appropriate technologies at a lower upfront cost to providers. Leasing allows OEMs to decrease the sales cycle, avoid huge discounts as the cost is steady and ongoing, bundle solutions, and create a recurring revenue stream. Considering the ongoing financial pressure on providers and increasing demand on medical device vendors, the product-based commoditization model will pave the way toward a leasing or servitization model, which benefits all stakeholders in the value chain.
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