THE COWEN INSIGHT
Our latest survey of hospital administrators suggests that U.S. hospital capital spending will return to historical levels by mid- to late 2021. These findings suggest a slower-than-expected path back to historical capital spending levels. It also contrasts with industry commentary depicting all of 2021 as normal. We think companies will need to offer very flexible payment terms on capital equipment to navigate the challenges posed by COVID-19.
COVID-19 Has Hurt 4 of Every 5 Budgets, with 60% of Spending Now Directed at the Virus
Twenty of the 25 U.S. hospital administrators we surveyed (80%) said a portion of their 2020 capital budgets have been diverted toward COVID-19 spending. This represents an uptick from the 70% figure reported in our May poll but is largely consistent with the feedback we’ve received elsewhere.
Respondents have devoted from 5% to 100% of this year’s capital budget to fighting COVID-19, with a median value of 60%. Purchases placed on hold represent a wide variety of capital items. They range from replacement goods such as beds and stretchers to new technology purchases, including high-priced surgical robots.
The Pandemic’s Impact on Capital Spending Appears Likely to Extend into Late 2021
When we asked the administrators when their hospitals would likely complete their capital purchases originally planned for 2020, the most popular response was late 2021, garnering eight selections (32%). The second-most-popular answer was mid-2021, which was selected by seven administrators (28%).
In a follow-up question, 13 administrators (52%) said their non-COVID-19 capital spending budgets should return to historical levels by late 2021 or early 2022. Had the pandemic not occurred, 20 of 25 administrators (80%) said they would have completed their top-three capital purchases within the next 12 months.
Our Updated Survey Reflects a Delay to Capital Spending Recovery
In May, 27% of this same group named late 2020 or early 2021 as the time they’ll complete their planned 2020 purchases. 20% selected mid-2021. Moreover, 40% said their non-COVID-19 capital spending budgets should return to historical levels by mid-2021. 57% indicated they would have completed their top-three capital purchases by late 2020 if not for COVID-19.
Our new survey therefore reflects a three- to six-month delay to the projected recovery timelines established by our May poll. Roughly 32% said they’ll complete their 2020 purchases by late 2021, while 28% said mid-2021. While such a delay is not shocking to us – after all, we’re experiencing an unprecedented global pandemic – the push-out runs counter to the prevalent industry narrative that all of 2021 should be a normal year rather than a period with continued turbulence from COVID-19.
We Expect Med Tech Companies to Push Flexible Payment Terms to Navigate COVID-19 Challenges
Apart from the negative takeaway associated with a delayed recovery in capital spending, our latest survey was fairly mixed overall for medical technology companies. On the positive side, the administrators we polled do not uniformly believe that the pandemic will greatly pressure industry pricing. 48% do not expect to receive above-average price concessions in the wake of COVID-19.
Further, 64% of respondents reported an increase in capital adoption plans that don’t require large upfront payments, including leases and implant volume commitments. We think these new, more flexible options can sustain interest in big-ticket items like surgical robots in spite of the economic disruption caused by COVID-19.
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