For medical technology suppliers, the COVID-19 pandemic is fraught with possibilities and challenges. Navigating these challenges and reaping the opportunities requires careful consideration of the financial impact of COVID-19 on hospitals and the health care industry as a whole. Translating this understanding into relevant offerings and thoughtful pricing strategies is critical to the survival of emerging med-tech providers.

Healthcare’s Financial Crisis

At this stage in the COVID-19 pandemic, healthcare is just one of many industries that continues to be financially impacted. While this may seem counterintuitive (certainly a pandemic would increase demand for care), the fact remains that the industry has lost revenue-generating services by canceling or delaying elective and outpatient surgeries and reducing emergency department visits.[1] These and other services and procedures were halted to make room to treat COVID-19 patients, leaving the industry in a financial bind. Profitable procedures and services that have been put on hold were generating the cash flow necessary to support operations, pay staff and invest in expansion and new technology.[2]

Kaufman Hall reported that “hospitals’ outpatient revenue fell 49%, inpatient revenue dropped 25% and operating EBITDA margins fell 174%.”[3] According to David J. Muhs, CFO of the  Henry County Health Center in Mount Pleasant, Iowa, the facility has seen a decline in gross revenue of 50% because elective procedures have been put on hold during the COVID-19 pandemic.[4] This is a common trend across the US. Gross revenues at Fort Memorial Hospital in Fort Atkinson, Wisconsin, have fallen by 60% and while “some revenue from elective procedures is delayed rather than lost…the missed primary revenue is gone forever,” Lola Butcher of the Healthcare Financial Management Association reports.[5]

Other financial challenges facing the industry include the fact that physical space and capacity for in-person visits will likely be unnecessary moving forward as Telehealth is predicted to play a more central role in post-pandemic healthcare. Physical workspaces for staff and patient care units are becoming more costly and, in some cases, less necessary. Procurement, logistics, and storage of supplies from just-in-time to just-in-case adds necessary and unpredictable costs.

Decreased revenue, reduced billings, and increased costs are causing hospitals to prioritize their expenditures, and this is especially true for smaller facilities struggling to survive. Creative solutions are needed to keep these institutions afloat, including:

  • Delaying capital purchases
  • Halting construction and other nonessential projects
  • Securing lines of credits
  • Redeploying rather than furloughing employees to ensure teams are ready for a pandemic surge.[1]

To mitigate cash-flow issues, hospitals and health care providers are:

  • Prioritizing how money is spent
  • Asking essential vendors for flexibility to get through the cash-flow crunch through an extended payment period, discounted interest, or other pricing and term concessions
  • Asking insurers to grant interruptions to premiums or a reduction in premiums that could be made up later. Some organizations that have coverage that extends to losses from the Covid-19 crisis are leaning on insurers for relief.[2]

According to the Healthcare Financial Management Association (HFMA), how a healthcare organization will fare post-pandemic will depend on their financial position post-COVID-19, and how hard the community was hit by the disease.[3] The top challenges after the pandemic for these organizations will include:

  • Managing the recovery period
  • Adapting to a new normal
  • Navigating a period of increased consolidation.

“As for the future, the pace and degree of volume likely to return are unknown, leaving hospitals struggling to chart a clear path to financial recovery,” HFMA contributor Ryan Freel reports. “These shocks are evident in the disruption hospitals are seeing in their balance sheets,

starting with the initial scramble for liquidity and progressing to serious questions about debt and capital structure,”[1] he writes.

Financial forecasting, reporting, and balance sheet implications pose a huge challenge for these financial institutions as cash flow disrupts business as usual. Challenges around financial forecasting and reporting have significant implications on health organizations’ balance sheets, specifically in the areas of:

  • Goodwill/indefinite-life assets
  • Property, plant, and equipment
  • Leases.[2]

Pivoting to Virtual Healthcare

While the pandemic has caused an unprecedented financial crisis for the healthcare industry, it has also proven that direct, personal contact is not necessarily essential to care. While the technology is there, virtual healthcare delivery was arguably in its infancy prior to the pandemic because of a hesitation to widely adopt existing medical technology (including cloud-based storage, patient tracking, telemetry, digital imaging, virtual meeting technology, etc.).

The COVID-19 pandemic and an effort to avoid nonessential, in-person meetings have pushed the industry’s hand, forcing healthcare delivery to overcome obstacles like privacy concerns, licensing regulations, and consumer resistance in order to quickly provide virtual, technology-dependent care.[3] Patients, payers and regulators have now been forced to acknowledge the legitimacy of virtual healthcare which has quickly become a reality in a variety of realms including:

  • Direct care for patients with multiple chronic conditions
  • Home-based intensive care
  • Behavioral healthcare services
  • Nonsurgical specialty care.[4]

Some of the technological capabilities needed to facilitate these changes have been developed while other technologies are new or in development.[1] The challenge for hospitals and health providers is to find the funds to invest in new technology when nonessential purchases have been halted. How the industry will navigate healthcare delivery and fees in a world of virtual healthcare is also uncertain.

The result is that hospitals and health systems are facing a significant COVID-19 pandemic-driven financial crisis that has impacted their ability to invest in medical technology at a time when this technology is critically needed. As such, industry leaders must assess their needs, prioritize their expenditures, and assess the strategic implications of digitizing care.[2]

Telehealth has played a critical role in the pandemic response and will likely continue to play an essential role in healthcare delivery post-COVID-19. As such, institutions are now looking at whether they have:

  • Adequate infrastructure
  • Data to predict a normal volume of telehealth post-pandemic
  • The ability to scale up infrastructure to handle volume
  • Payers who will support telehealth.[3]

 

Pricing Key to Med-Tech Survival

It’s clear that hospitals and health systems are facing a significant COVID-19 pandemic-driven financial crisis that will impact their future investments in medical technology. With reduced capital expenditures, med-tech suppliers can expect a ripple effect as customers look to halt or exit existing contracts they can no longer afford.

Alternative pricing offers will be critical as the med-tech industry looks to weather the storm ahead. Med-tech suppliers would be wise to ensure clarity in how clients can generate better patient outcomes and a return on their investment, from the delivery of their technology and provide an understanding of the fees they can charge payers.

Med-tech companies need to understand how these financial challenges will impact hospitals and health systems, especially in terms of their investment priorities. When determining these investment priorities, common questions from the healthcare industry include:

  • Can they compete virtually?
  • What are the opportunities to increase scale and would these capabilities include the expansion to regional or national markets?
  • What is the strategy with respect to independent physicians?
  • Will compensation models have to change, and can physician’s practices survive the inevitable loss of business?
  • Is there capacity for effective consumer segmentation and the ability to design consumer solutions based on that segmentation?
  • What form will payment for virtual services take?[4]

As vendors, med-tech companies that can provide clear answers to these questions and have well thought out offerings will be well-positioned over the competition. Pricing transparency as well as flexibility to work with clients is also critical. Med-tech companies that create pricing considerations designed to help clients creatively navigate their cash-flow challenges with extended payment periods, discounted interest, and other pricing and term concessions will be in a stronger position. Careful pricing considerations can help both the health care and med-tech industries survive this financial crisis.

Looking for help designing your pricing strategy during the current financial crisis? Contact the team at Pricing Solutions for customized solutions.