Selling Capital Equipment In Today's Healthcare Market More Challenging Than Ever
BY JEFF LITTLE
Partner
[June 27, 2023] – Selling and supporting capital equipment to hospitals has long been an arduous task with a typically protracted sales cycle, intense “big ticket” price and service negotiation, and requiring a strong combination of persistence and patience on the rep’s part.
When it comes to sales, this is tortoise-versus-hare sort of stuff.
In today’s healthcare market, with ever-more-limited access to key influencers and decision-makers in hospital purchasing, navigating CapEx seas remains challenging, if not more challenging than ever before. To be successful, a sales professional must be real-time-informed as it relates to shifting trends and subtle nuances in hospital capital equipment needs, purchasing and all-important support.
What Characterizes Capital Equipment?
Capital equipment is considered any item of hospital equipment that exceeds an established “set mark” which can vary by hospital size. For instance, a smaller, rural hospital running on a tight budget may establish a “set mark” of anything costing $1,000 or more while a larger facility with deeper pockets may establish a “set mark” of $5,000 or more. [This number is based on the total purchase price so if you were to order 10 physician stools at $300 apiece, a smaller hospital would consider the $3,000 total price tag a CapEx while a larger hospital would not.]
In each situation, the item or multiple items being purchased is considered a durable item, meaning usage life of one year or longer versus an item reordered and restocked on a regular basis. Typically, capital equipment has a usage life of several years but will depreciate in value over time, as well as becoming outdated or obsolete with the emergence of new medical technology.
While many people assume all capital equipment items are large and bulky, this isn’t always true. A large, back-up power generator selling for $15k [or more] certainly is capital equipment but so, too, can be a small, portable defib device costing $1-2k, depending on the “set mark”. Another characteristic of capital equipment is its tangibility. It is a physical, material item versus a purchased service that cannot be physically touched and does not occupy space. Capital equipment purchases are often made for:
Newly constructed, expanded or remodeled hospital spaces
Replacing older, outdated equipment, or …
Adding more units to meet capacity demands.
Obviously large capital that isn’t replacing an existing unit would necessitate a build-out/remodel [i.e., MRI, CT, etc.] while smaller capital equipment may be purchased for a variety of reasons. In both cases, purchase price is based on the cost of manufacturing, shipping, staging, assembly, delivery, installation and ongoing service/support. Capital budgets and expenditures can also fluctuate significantly from fiscal year to fiscal year.
What’s Up … and What’s Down in Hospitals These Days?
While we’ve officially moved on from the Covid Era, its effects on certain medical procedures lingers. For obvious reasons during the worst of the pandemic, most non-urgent medical procedures were postponed or canceled outright in the interest of minimizing exposure and contact between individuals in the hospital/clinical setting.
While many types of procedures that often include capital equipment are currently tracking at full capacity – i.e., colonoscopies, endoscopies, cath-lab procedures, orthopedic, cardiac and certain spinal surgeries – other procedures such as general and elective surgeries, plastic/cosmetic and bariatric surgeries continue to lag. Fortunately, all indications are that these areas will see significant improvement in 2024 and 2025 [barring an unforeseen locust swarm or another pandemic, Lord help us all].
Staffing Challenges Continue to Exacerbate Matters
Even when capital equipment needs have been identified and funds are currently available to purchase, many hospitals simply don’t have enough specialized staff members to justify the financial outlay. Until labor shortages are mitigated and staffing returns to normal, pre-pandemic levels, many hospitals’ CapEx purchasing decisions will remain in a holding pattern. A survey conducted by BTIG and released in March of this year found that:
75% of hospitals said procedure volumes are still being affected by staffing shortages [but more than half of the 40 hospital executives queried indicated they expect to return to normal staffing levels sometime in 2024].
Half of the hospitals surveyed said 2022 revenues were essentially flat or lower than pre-COVID levels. The good news is that 2/3 of respondents expect revenues to grow in 2023 and most plan to increase their CapEx budgets later this year or in 2024.
All survey respondents said they expect all medical procedure categories to return to normal levels by 2025 so it appears we’re finally emerging from the storm.
Budgets Have Been Tight in Recent Years
Hospitals nationwide [and globally, for that matter] have been under tremendous strain the past three years, largely due to Covid but also due to rising equipment and supply prices, and supply chain challenges.
Aside from pandemic concerns, many hospitals and hospital systems have pulled back on CapEx budgets due to economic circumstances, and political and business concerns. Ongoing inflation worries have caused administrators to reel in planned expenditures which can, on one hand, be beneficial for better budget management yet, at the same, a lack of spending in the present eventually leads to an accumulation of problems and bigger expenses in the not-so-distant future as equipment and facilities deteriorate.
It’s a true conundrum for financial decision-makers. Administrators know they must continue to invest in leading technology but when’s the right time to pull the trigger? Having said that, a recent MedTech Dive newsletter noted capital spending priorities for hospitals in 2023 and 2024 are: surgical equipment and IT/software products [especially as tele-med or telehealth grows].
With the above in mind, those who sell capital equipment should expect hospitals to continue to ask for meaningful price reductions and/or flexible payment plans.
So, What Does This Mean for You?
In a nutshell [so to speak], capital equipment sales are a tough nut to crack. Tougher likely than ever before. Reps must stay up-to-date on all matters that factor into CapEx spending decisions and be ready to sell on a basis of overall value versus only focusing on the proper numerical price-point. There are many dimensions to landing at the right price-point and they’ve all got to be measured in terms of value if you are to properly till the soil and successfully sell capital equipment to hospitals.
In Installment 2, we’ll do a deeper dive on value versus cost. Until then …
ABOUT JEFF LITTLE
With more than three decades of healthcare industry and hospital-related experience, Jeff is a recognized thought-leader in various aspects of hospital supply chain, purchased services, hospital operations, facilities and construction, and medical capital equipment.
Jeff offers clients a unique perspective and is well-connected throughout the healthcare industry, having worked in clinical settings within world-class hospitals, and multiple Integrated Delivery Networks [IDN] and Group Purchasing Organizations [GPO]. He is able to educate clients on subtleties and nuances of the complex healthcare ecosystem and excels at the development of commercial strategies. His primary role at Excelerant is to be a “growth engine” for clients seeking to expand their footprint by gaining greater access to the market and to key stakeholders within.
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ABOUT EXCELERANT CONSULTING
Excelerant Consulting is the go-to organization for med-tech companies that need to position products and services successfully for value analysis committees, contract acquisition, and sales modeling and execution to commercialize the launch of medical devices or services with Group Purchasing Organizations [GPO], Integrated Delivery Networks [IDN], or Regional Purchasing Coalitions [RPC]. Our clients rely on us to enhance their product positioning, navigate corporate contracting opportunities, and provide sales support to accelerate growth and profits.
For more info, contact Excelerant Consulting at info@excelerantconsulting.com