Providing Insights to Strengthen Healthcare Business and Support Holistic Strategic Decisions

Jan 28, 2021

Blog

As a healthcare leader, you closely track economic and market trends in your segment to make strategic decisions. But hearing perspectives of other leaders in your sector can also be helpful. DLL recently hosted a European customer panel for a select group of strategic healthcare partners. The purpose: assess the macro level impact of COVID-19 and share approaches for addressing its challenges in various healthcare segments.

“A session like this is ingrained in our partnership DNA,” said John Sparta, President Global Business Unit, Healthcare and CleanTech at DLL as he kicked off the panel. “As we go through a crisis like this COVID-19 pandemic, we are all really focused on how we can strengthen each other. Our purpose is to share information that our customers might not have access to and discuss some of the things happening in the markets to learn from each other. It also gives us insight into how we can best support our partners.”

Since healthcare is so heavily affected by the COVID-19 pandemic, this was a deep dive panel with five healthcare partners across different healthcare segments: medical imaging, surgical, dental, aesthetics, and wellness & fitness.

COVID-19 shock – the long and winding road back to the Next Normal
Elwin de Groot, Head of Macro Strategy at Rabobank Group gave his views on the macro economic trends ahead and how they will affect the healthcare sector in the short and long-term. The good news is that the arrival of effective vaccines in 2021 is giving companies the perspective of returning to ‘normality’. Monetary and fiscal policy support has successfully staved off a much-feared demand shock to the economy.

Having said this, De Groot continues: “People are already dealing with a second wave of COVID-19. Plus, the crisis in 2020 has added to the long-term implications: technological developments have accelerated, spurring new business models, and offering new opportunities for growth. At the same time, the world is exiting this crisis with even more debt and a sharp increase in ‘zombie companies’, which are deeply in debt but kept alive by receiving financial support. Many employees in healthcare and other sectors are also suffering from high and long-lasting levels of stress. All of this is likely to weigh on the world’s future economic growth potential.”

Moreover, ongoing geopolitical tensions contribute to a challenging international investment and trade climate. Government intervention, shifts in supply chains, protectionism and even outright de-globalization are trends that have only been amplified by the COVID-19 shock. Some of these trends are also relevant to the healthcare sector.

In conclusion, we threw our economic text books away a long time ago. Today’s situation is much more about political economy than financial economy.

Graph depicting healthcare insights
Global economic outlook for different regions. Source: RaboResearch Global Economics & Markets

The discussion centered around three key topics:

Topic #1: When will the healthcare economy fully recover from COVID-19?

“Most panelists said they had seen a minimal or no reduction in their revenue levels and expect to return to pre-COVID-19 levels well before 2022,” said Ralph van Aken, Regional Sales Manager Healthcare and CleanTech Europe. “Several said that their losses in one part of their portfolio had been partially compensated by gains in other areas.” For example, although many dental clinics had temporarily shut down, there was more demand for air purifiers (used in the dental space) to partially make up for these losses. This is different for a surgical company. They saw minimal impact on their revenue streams, since the slow-down in elective procedures was compensated by a higher demand for hospital beds.

The panel predicts a recovery in diagnostic imaging revenues by 2021, whereas the market for fitness equipment is only expected to return to pre-COVID-19 levels in 2022. As a result of the pandemic, the fitness segment sees a strong cultural shift with people investing in gyms at home. This trend is expected to increase in the coming two years.

Surge in cosmetic products during COVID
Both providers of aesthetic and dental equipment have seen a surge in demand for some of their product lines. With people spending several hours a day looking at themselves in online meetings, they are becoming much more conscious about their appearance. As a result, the demand for aesthetic corrections, such as dental alignment or hair restoration saw a strong increase.

Topic #2: Will your industry see increased levels of investments post-COVID 19?

All but one panelist expected greater investment post-pandemic. “We are seeing a huge backlog of people making purchases for their dental offices to get them up to speed,” commented one partner. “They are remodeling and doing all those things they have put off for a long time to bring their offices up to a higher level and adapt them for the new post-COVID business environment.”

Will politicians finally realize they have under subsidized healthcare for years?
One panelist posed this question, which led to a lively discussion. Another commented, “Governments can claim that this only happens every hundred years. We are taking advantage of this credit situation to re-fund healthcare centers. In this respect, the COVID-19 pandemic could have a positive effect on government debt.”

Another partner agreed that funding will rise but added, “Investment will not happen in the classic way. The bigger impact will be on digital and productivity gains. That’s where we will see the investments.”

De Groot added, “I hope that politicians see that they have neglected the healthcare sector, but the risk is that when we come out of this crisis, they will have a huge debt. That may mean that government investments which have underperformed, will continue to underperform so we still have to see if the positive scenario will play out.”

One panelist had a different view. “We are not getting out of the economic situation just by investing. We need to look at people’s health more holistically. We should focus on helping the population become healthier. I believe absolutely that it is more about prevention than cure.”

Topic #3: Innovation in technology and product life cycle is driving a change in business models. Can finance can be an enabler for this?

“From our perspective, we have been seeing the shift in healthcare from ownership to usage of assets even pre-COVID-19,” said Sparta. “Changes that normally took 3-5 years, are now taking place in 6 months or a year.” All participants agreed that the crisis has accelerated the shift towards usage-based and other emerging models for equipment acquisition.

The panelist in aesthetics said, “Our customers are asking for different models to purchase equipment, like pay for use. More and more small practices are joining larger practices and these enterprises are not keen on having these assets on their balance sheets.”

“I don’t believe there will be enough true liquidity of any hospital to provide adequate equipment, so finance is an enabler for this,” the panelist continued. “Hospitals are making the transition to more outpatient and ambulatory care. Changes in the provision of healthcare are being made – private versus non-private facilities. Surely these dynamics are enabled through new financial models rather than through traditional capex. We are working on moving towards a pay per click scenario because it enables us to capitalize and stabilize our business.”

“Our customers are asking us for different models for equipment acquisition,” said the dental panelist. “We’re offering hardware as a service instead of selling it. This provides our customers an upgrade every 3 years. This is really relevant, especially in the healthcare space.”

Our customers are asking us for different models for equipment acquisition."

“During the pandemic, DLL really helped us in terms of payment delays and our customers won’t forget it,” said the panelist from the imaging company. “A lot of our customers have suffered because they were stuck in non-flexible finance models. This is not an area where a manufacturer likes to play. It is a dilemma we have as well. We don’t want to take the risk. I think DLL can be an enabler and agent for us by coming up with something that balances that risk. That’s a need that all our customers have.”

In conclusion
“We can conclude from this discussion that the economies of all countries have been strongly impacted by the COVID-19 pandemic, and will require years to grow back to the 2019 levels,” says Van Aken. “Certain healthcare segments on the other hand have only been minimally affected and are even experiencing business growth. Even though part of healthcare may have been less affected than other industries, it’s clear that investment in new technology and new usage-based financing models is needed and this is the future.”

“This panel demonstrates how important it is for us to come together and work on the complex challenges we face,” concluded Sparta. “This discussion is further validation for me of the path we are on. We do not have all the answers, but we are in this together. The key is sharing information and going as deep as possible into each other’s worlds to understand all perspectives so we can make the best decisions going forward.”

Curious to learn more on how DLL's financial solutions can support your healthcare business? Please contact us to explore your options.

Today’s situation is much more about political economy than financial economy. "
They are remodeling and doing all those things they have put off for a long time to bring their offices up to a higher level and adapt them for the new post-COVID business environment."