Pricing pressure on technology and medical devices from hospitals will only increase this year, which will likely lead to more acquisitions among device manufacturers and an overall focus on reducing nonlabor costs within a hospital.
Device companies, which have long used innovation as a selling point to generate higher prices for their products, are now faced with hospital clients that are increasingly cost-conscious and physicians who are now employed by those hospitals.
“Our expectation is that devicemakers will continue to turn to shareholder-friendly initiatives and acquisitions,” says Diana Lee, a senior credit officer with ratings agency Moody's Investors Service.
In a Dec. 9 report, Moody's predicted that organic growth rates for medical products and device companies will remain soft through 2012, attributed in part to the weak global economy, pricing pressure from hospitals, the regulatory environment and declining medical coverage under health-benefit plans. Along with acquisitions, device manufacturers will likely engage in buybacks and dividends.
In Washington, the device industry will continue to fight the medical device excise tax of 2.3% on manufacturers' sales, which is set to go into effect Jan. 1, 2013, while the Food and Drug Administration will grapple with the Institute of Medicine's recommendation that the agency scrap the 510(k) clearance process.
For group purchasing organizations, the attention on cutting supply costs keeps the outlook for GPOs positive, says Amerinet President and CEO Todd Ebert. Supply chain consulting, benchmarking and revenue-cycle management, as well as traditional supply chain services such as addressing product prices, reducing duplicates and enhancing product usage support hospitals' efforts to cut costs.
“Organizations will continue to look internally to their existing business partners to help them with effectiveness and efficiency,” Ebert says.
The twin pressures of healthcare reform and the economy, as well as health systems and hospitals that are growing by consolidation, means that managing the supply chain strategically is crucial, adds Brent Johnson, chief purchasing officer at Intermountain Healthcare, a 21-hospital system based in Salt Lake City.
