The complexities of equipment acquisition in the healthcare space are growing by the day. Broad contributing factors include geopolitical unrest, labor shortages, supply chain issues, inflation, and rising interest rates. Any one of these factors is challenging enough, but the combination of them all means a bumpy economic road ahead. Thus, wise business leaders and purchasing professionals will seek to be well informed and ready to utilize tools and strategies that can help navigate through these challenging times in a balanced and effective manner.
Why Equipment Costs Are Increasing
Inflation will likely be a reality for the long-term. What does that mean for supply chain managers? Over the next few years, the cost of just about everything may continue to rise at a much more steady pace than we’ve been used to for decades. The clear and simple reality that inflation creates for any business is this: Purchasing equipment and supplies will cost less today than it will next year, next quarter, or even next month. As the price of everything rises, the purchasing power of tomorrow’s dollars will continually diminish.
As of March 16th, the Federal Reserve officially began the long-speculated process of raising interest rates. Many economists expect there will be 6-8 more increases over the next 12 months. These actions by the Fed are intended to counterbalance inflation, an approach that has proven effective in the past. However, the impact of rate hikes will surely have a slow-burn effect – over the course of months and likely even years, especially since current inflation is heavily influenced by the pandemic.
Typically, there is advance notice of pending action by the Fed, followed by a phase-in period by financial institutions. This means that while accessing capital or arranging for equipment financing will incur more interest cost over time, rate increases will be incremental. While short-term access to capital may not be a problem for many providers, others rely upon borrowing and direct financing options. In any case, a buyer seeking to use financing will find historically low rates in the near term, but with each succeeding Fed announcement, borrowing costs will continue to increase. Thus, there will be real cost savings for those who act sooner rather than later. Furthermore, financing equipment today has the double benefit of locking in current pricing AND current interest rates.
What You Can Do
- Finance Equipment. A financial solutions provider can access capital funds on a customer’s behalf that will lock in today’s pricing and thus shield the end user from ongoing increases – even in the midst of lengthy supply chain delays. The shield comes in the form of fixed-rate payments. Assets acquired through financing are thus based on today’s prices and paid later with inflated dollars over a multi-year lease term. Most healthcare institutions in the United States have, in some way or another, utilized financing at some point to deal with things like capital budget shortfalls or to preserve cashflow.
- Rent Equipment. Rental of critical care equipment has always been an important tool for hospitals in peak-need situations. During the pandemic, rental became a crucial means of quickly meeting equipment needs as patient census levels surged and then persisted for many months. As patient levels have dropped at healthcare facilities, demand for rental services has diminished as well. With providers now evaluating long-term equipment needs with shrinking capital budgets, equipment rental can address needs in the short-term and the long-term. Equipment rental remains an affordable avenue to acquire equipment.
Rental and financing solutions address two vastly different ends of the equipment acquisition spectrum in healthcare. As providers learn to utilize these tools more effectively in a complimentary manner, they can become invaluable solutions for navigating through challenging and even unpredictable economic times.
The Bottom Line
Rising inflation and interest rates are certain to erode margins and even feasibility for new equipment acquisition in the near and long term. A solid hedging strategy should include partnering with companies that provide rental and financing options to reduce the sting of inflationary pressure and help healthcare providers become stronger than ever.