Intensifying partnerships in unprecedented times

To provide the strongest possible partnership approach along with deep industry and asset expertise, DLL continuously seeks feedback from industry peers. Recently, we hosted a European customer panel for a group of strategic healthcare partners across different healthcare segments: digital imaging, life sciences, dental, and wellness & fitness.

Representatives from DLL and parent company Rabobank were featured among the panel, including John Sparta (President of the Healthcare and Clean Technology Global Business Unit at DLL) and Michel van Schaik (Director of Healthcare at Rabobank). The goal was to deepen our understanding of our customers to shape solutions that will continue to bring value in the long term.

Growth drivers for the healthcare sector
Michel van Schaik sketched three trends driving growth in healthcare: aging populations, enabling technology, and growth of vitality services.

“As aging populations rise and more people live longer, they may present with multiple issues which require more care,” he said. “Luckily, new enabling technology helps to address this, but it also drives up costs. The Netherlands now spends EUR 100 billion on healthcare annually, translating to about 25% of an average family’s gross income. The coronavirus pandemic has added increased stress to healthcare systems around the world with tensions between elective surgery backlogs and tackling new waves of COVID. The limiting factor now is not money but labor shortages due to high levels of sick leave and specialist staff leaving the profession.”

Which is why the third driver – growth of vitality services (such as fitness and wellness propositions that help people to live a healthier life) is even more important. Prevention receives more focus these days as it is seen as one way to arrive at a more affordable and balanced healthcare system, according to van Schaik.

These three trends combined are expected to boost healthcare expenditure in the future and present new investment opportunities, he concluded.

After exploring these trends, the panel was asked to react to three statements around sustainability, innovation, and usage-based solutions in the healthcare equipment financing space. Below are insights on each of the statements.

Statement #1 How has the societal attention for, and pressure on, sustainability, ESG (Environmental, Social, Governance) and a circular economy changed the way you sell equipment to your customer?

At the end of the lease period, most participating companies refurbish used equipment to resell. In some sectors, while customers do care about sustainability, the main driver of demand for used equipment is access to more up-to-date technology at a lower price.

In the Med Tech sector, buying decisions increasingly focus on how to use the asset more intensively. Customers are continuously asking how to apply more predictive maintenance or use fewer spare parts and still extend the life of the equipment. In addition, the availability of subsidies or incentives for equipment that is energy-efficient or uses less plastic may be making Med Tech buyer behavior more sustainable.

The panel was also asked how often customers inquire about their Corporate Social Responsibility policies or credentials. It was noted that those requests are uncommon, and that customers are presently more interested in fast delivery and solutions to supply issues.

While many healthcare executives are more focused on budgets than environmental impact, van Schaik noted that young health professionals are already challenging hospital boardrooms on their sustainability policies, though there is still a long way to go. He stated that the sector is in survival mode as it seeks to deal with today’s challenges, and sustainability is typically a long-term issue.

Statement # 2 The speed of innovation and technology is moving faster than ever, leading to more product launches and shorter asset lifecycles. At the same time there is growing pressure to re-use, upgrade and recycle. What is the role of a finance proposition in this context?

There was consensus among the panel that the speed of innovation is extremely high.

Customers would prefer not to have to buy new equipment after two years to stay up to date with the latest technology; they're looking for flexible payment solutions that provide the ability to upgrade. Therefore, vendors are increasingly offering financial solutions that include an option to change or upgrade equipment during the contract.

“Every customer we talk to is asking for the same thing, ‘How can you help me create better patient outcomes at the lowest possible cost?’” shared John Sparta. “I believe that can only come through proactive preventive care with patients and a continued focus on technology and helping our partners stay in their technology sweet spot.”

Consider looking to other industries for inspiration. One such example is the Tesla model, where effectively you don't upgrade the car, you ‘uplift’ it with a certain level of features sent remotely through a SAAS model, which benefits the customer. The challenge for the future template of a financial product is, ‘What’s the value of the asset after this uplift?’ ‘Can you review the asset’s value three years after the initial commitment of the customer?’

Sparta confirmed the trend of assets staying in place for longer periods with the ability to upgrade the software. “We’ve responded to customers’ requests to finance these types of upgrades which were not included in the original leasing structure.”

Statement #3
Within the healthcare market, access to the latest technologies provides better outcomes for patients and enhances people’s wellbeing. How can usage-based finance help your customers in achieving this?

In response to this statement, Sparta shared insight on how usage models can be applied. He mentioned mobile units and fleet management as good examples of how usage options could provide better patient outcomes – and help the industry become more sustainable.

Deploying mobile units – for instance, for breast cancer screening – could reduce backlogs and provide a better answer to patient needs. Fleet management could help reduce the amount of equipment standing idle in an overall health system of separate hospitals.

“Often each hospital has an abundance of equipment they bought independently, most of which is not completely in use at any one time,” said Sparta. “If there was a way to move that equipment around, data and technology could help us deliver more usage-based programs so that we could work smarter with fewer actual assets in the future.”

One panelist is currently collaborating with a data startup to develop an app that measures whether the equipment is working effectively, predicts the time to the next maintenance period, and when to order consumables and spare parts. This could be the next step for usage-based finance where there is control of the equipment, and information can be extracted and made available to vendors and their customers.

In some sectors there is customer resistance to usage-based models. Unlike the automotive sector where usage-based models are common, fitness customers prefer to be the owner of the product rather than the user. Alternatively, dentists are happy to lease simple equipment like copiers or printers, but they want to own the dental equipment itself. One reason for this could be a misunderstanding of the cashflow/capex impacts of the switch from ownership to usage-based models.

In addition, overall risk is a key reason usage-based models are still only used sporadically in healthcare. There must be a change in thinking in order to crack the code on risk. If the usage among a number of people is shared, then the risk among a number of people may also need to be shared.

CONCLUSION
Based on panel consensus, the healthcare sector is still quite budget-focused, and sustainability is often secondary. But increasing pressures from younger generations and incentives from banks and governments could be a force for change. Despite rapid technological developments, asset lifespans seem to be rising. This is due in part to higher quality assets, options for refurbishment, and better service. The notion of upgrading equipment through a SAAS model could have potential in the future. While there are some usage-based models on the market, customers are not yet actively demanding them and seem reluctant to shift from ownership models. However, younger generations and sustainability considerations could help to drive adoption. And lastly, who takes on the risk and is risk sharing possible?

“By learning from each other we deepen our asset and industry knowledge even further, which helps us to develop even better solutions,” concluded Sparta. “Partnership is in our DNA, and we really felt the value of that partnership in these.’’