Summary
Poor financial performance and severe lack of credit are causing hospitals to place aggressive pricing pressure on device manufacturers. In addition, many hospitals are reporting a 20-30% reduction in elective procedure volume such as hip and knee replacement surgeries. The combination of the hospital financial environment and the recession will reduce hospital's purchasing volume and reduce the Average Sales Price (ASP) for the devices they purchase.
Analysis
The reduction in elective procedures impacts device manufacturers that market implants used in non-urgent or emergent cases. Urgent and emergent surgical procedures are usually those associated with trauma, severe cardiac arrest, etc.
The device manufacturers most likely to be impacted are those in the orthopedic, spinal, cardiac cath, endoscopy, and other non-urgent specialties.
At the beginning of November, many hospitals lost their available credit lines and access to capital. This in turn made them rely more heavily on their limited cash reserves. Since overhead and labor costs can not swiftly be reduced (although many hospitals have reported non-clinincal staff layoffs) many hospitals are aggressively attempting to renegotiate supply purchasing agreeements.
I expect device manufacturers will begin to feel the trickle down effect over the next 6 to 12 months. Manufacturers should expect to see both volume drops as well as reductions in ASP.
