Medical Device Chasm
Medical Device Technology advancements create challenges for hospitals, other healthcare providers and device manufacturers.
Like with computers, the rapid changes in technology have proven challenging for healthcare to keep pace with the added pressure from reimbursement reductions and penalties, as well as merger and acquisitions which restrict access to capital budgets and the need to invest in revenue-producing projects.
Yet clinical advancements designed to improve patient satisfaction and care are attractive to the clinical staff and are often seen as necessary to spite the capital constraints. If they are to keep pace and attract physicians as well as patients, they must provide the latest and best technology. How can they accomplish this in an ever-increasing, cost sensitive environment?
Manufacturers have relied on this preference for many years. In today’s environment preference is often outweighed by budget considerations. No longer can preference nor relationships with suppliers drive technology decisions in healthcare.
This problem transfers from the providers directly to the manufacturers. How can they continue to sell equipment when budgets are so restricted or the senior leadership challenges the clinical need for equipment replacement or new technologies?
Medical device manufacturers face the added challenges of interfacing their equipment with healthcare provider systems, which enable sharing data across multiple providers and sites. This adds costs and complexity but has become the industry and market standard. The question of how to bridge the costs and clinical needs is now the manufacturer’s challenge.
The customer might be able to fund the devices through their operating budget but many manufacturers prefer a cash influx instead of an ongoing revenue stream to fund development as well as to run their own day to day operations. Their own financial guidance may not support direct lease, subscription or other creative payment options.
Fortunately, there are companies, although few in number, that have chosen to provide the bridge across this chasm of need versus capability. Twenty-five years ago, two gentlemen founded Med One Capital based on their understanding of this conflict or dilemma.
Several banks and other companies followed, but again, few were willing to take the risks associated with the non-ownership model required under operating lease structures. So why did these two entrepreneurs choose to accept the risk and specialize in providing medical equipment? I asked that question of the owners Larry Stevens and Brent Allen of Med One Capital. They shared the following thoughts:
“Our experience was with peak need rentals and it was clear that a large number of devices were being rented on a short-term basis but staying in the same location for a long time. Good for the rental company, but costly for the healthcare provider. Short term rental pricing was structured to recover all of the costs associated with the rental including depreciation, delivery and biomed servicing.”
They thought to themselves, what if we could offer a longer-term use with the option to acquire if capital became available? What would we need to accomplish this?
- Access to capital resources
- Relationships with manufacturers
- Providers’ willingness to access their operating budgets
A key element to the ability to effectively structure these types of transactions is a willing customer who will proactively cooperate from a standpoint of trust and cooperation in order to help create a structure that will be a “win” for both parties.
While neither of the owners addressed the solutions they provide to the manufacturers, the fact that many of the top infusion, respiratory and monitoring companies offer most, if not all, of their customers a non-cash option through Med One Capital reflects both their commitment and understanding of the device manufacturer’s dilemma as well as those of the healthcare providers.
As healthcare in America continues to change, the medical device manufacturers and the providers will undoubtedly face new challenges. There will be a need for companies to follow the intuitive and responsive leadership that has allowed all to overcome obstacles and challenges. This company is ready to find even more solutions to breach the chasms for manufacturers and providers, and hopefully others will be ready as well.