COVID-19 Impact on Medical Technology Spending
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The Cowen Insight
To judge COVID-19’s impact on U.S. hospital capital spending, we surveyed 30 hospital administrators whose duties include helping to manage capital budgets. Our survey findings point to a recovery timeline of about 12 months, which is approximately six months longer than the path outlined by several med tech companies in their recent commentary, calling for near-normal conditions by year-end 2020.
COVID-19 Has Disrupted 70% of 2020 Spending Plans, with 35% of Total Budgets Now Directed at the Pandemic
21 of the 30 administrators we polled (70%) said a portion of their 2020 capital budgets has been diverted toward spending related to COVID-19. This is consistent with the feedback we’ve received in our research checks since March and suggests that the pandemic has been disruptive to the majority of U.S. hospital capital budgets so far in 2020.
Our respondents have devoted from 10% to 100% of this year’s capital budget to COVID-19, with a median value of 35%. The median estimated projected spending total for 2020 is lower than this 35% median implies, at $275K projected vs. $2.6M planned for, with purchases made thus far including items like ventilators and pumps as well as build-outs of negative-pressure rooms.
Regarding what percent of their hospitals’ financial burden from COVID-19 that federal aid will cover, our administrators responded with a 20% median value, which could signal lasting financial repercussions.
Many Administrators Simply Don’t Know When They’ll Complete Planned Purchases
When we asked the administrators when their hospitals would likely complete any delayed 2020 capital purchases, the most popular response was “unknown,” garnering nine selections (30%). This reflects the uncertainty posed by COVID-19 and may be a more forthright answer than the time estimates we received.
Eight administrators (27%) named late 2020 or early 2021 as the time they’ll complete their planned 2020 purchases, while six (20%) selected mid-2021. In a follow-up question, 12 administrators (40%) said their non-COVID-19 capital spending budgets should return to historical levels by mid-2021.
Had the pandemic not occurred, over half the administrators (57%) said they would have completed the purchase of their top-three capital needs within the next six months, keeping pace with their 2020 spending plans.
The Pandemic’s Impact Seems Lasting, as 70% of Respondents Said Today’s COVID-19 Spending Will Affect Their Future Capital Purchases
Only 13% of the administrators we polled indicated that their future capital purchases will not be impacted by their present COVID-19 spending, while 70% said it would. Price concessions may be a way to revive any slumps in future capital spending.
Roughly 40% of those we surveyed expect to receive above-average price concessions from capital equipment vendors going forward, although 37% said they do not anticipate such discounts on capital equipment. We believe pricing pressure on traditional medical devices will continue and may even be exacerbated by the COVID-19 crisis. Notably, 77% of the administrators plan to seek price concessions from medical device manufacturers apart from their planned capital equipment purchases.