2022 Trends in Hospital Funding and How it Shapes Buying Cycles
By The Altus Team
Published Sep 16, 2020
| Updated Sep 19, 2022
| 5 min read
America’s Public Hospitals are Underfunded
The truth about America’s hospital systems is that it is grossly underfunded. The problems with funding do not stem from a single issue. In fact, there are many federal and state budget variables that affect the funding our hospitals receive as well as the money they need to spend to properly care for patients who enter through their doors.
Much of the money allocated for hospital funding comes through the Center for Disease Control which, over the last ten years, has decreased its budget by 10%. This trickles down into hospital funding, shaping buying cycles, and, most importantly, affecting patient care.
Healthcare Spending is Up
Despite a decline in dollars allocated for hospital funding, the numbers show that hospital spending is on the rise. Healthcare spending increased here in the US by 4.2% in 2021. Much of this increased spending is largely due to sickness and health issues caused by lifestyle, environmental, and socioeconomic factors. The American Medical Association notes that lifestyle changes could drastically improve the health of many Americans, thereby reducing the amount per capita needed for healthcare costs.
Unfortunately, implementing lifestyle changes has proven to be a challenge. As a result, spending has continued to grow while funding has continued to dwindle. Below we will observe how this disparity has shaped buying cycles and how we can expect that to further affect hospital efficiency and patient care.
Shifts in Buying Cycles
With the reduced funding and greater spending hospitals are facing, it’s no surprise that the healthcare industry, and hospitals specifically, have undergone significant shifts in their buying cycles. Today, hospital administrators—or those making the decisions about spending and allocation of funds—are very aware of the lack of resources they’re working with stacked against the needs they’re trying to meet.
Sellers need to realize that the buying cycle of hospitals is fairly lengthy and contains many steps: evaluation of needs, procurement, installation or implementation, and monitoring. They also need to understand that decision-makers want the most bang for their buck. While this is true of every industry, hospital systems are limited in what they can spend and have to make every dollar count, especially considering that public health depends on their purchase decisions.
There are a few specific ways that hospital funding affects the hospital buying cycle, and there are general principles that are challenged by a lack of funding and increased spending. We outline a few of these shifts below.
Reduced Drug Spending
One of the most common effects of hospital funding fluctuations is reduced spending on drugs. Hospitals have seen drug prices increase 4% since 2021, and that number is on track to continue growing. Unfortunately, those prices are becoming impossible for providers and patients alike to afford. As a result, we are seeing a trend toward reduced drug spending in healthcare facilities. One way hospitals are adapting to these skyrocketing prices is by seeking out different, less expensive options. For example, generic pharmaceuticals are becoming more commonplace and more appealing.
When drug manufacturers and sellers alike are targeting hospitals, they need to realize that providers are looking for the cheapest option that still gets the job done. Generic options are proving to be a rising favorite among hospital admins and boards.
Equipment Standardization Across Hospital Systems
It is common for there to be multiple voices in the room when equipment is being considered for purchase. However, many hospital systems are now considering standardization of products and equipment, such as computer carts, they choose to purchase.
Standardization reduces costs across the board. First of all, when a hospital or hospital system buys in bulk, they can usually take advantage of bulk or reduced pricing. In addition, end-user training is much more streamlined. A nurse or physician doesn’t have to learn to use multiple pieces of equipment that all do the same job simply because one physician prefers a certain brand or piece of equipment.
Maintenance costs are also reduced when equipment standardization becomes a priority. Technicians reduce the variety of machines they need to repair and maintain, saving time and money for hospitals and hospital systems. Even IT teams save time because implementation into the hospital’s IT system takes less time if all of the equipment is the same.
Most Buying Happens Out of Necessity
When hospitals are considering entering into the buying cycle, purchases are carefully considered and the options for equipment and devices are weighed heavily against need. In a Google analytical study of hospital spending and buying cycles, their researchers found that 71% of decision-makers choose to purchase new equipment when the current equipment is outdated. This is compared to new equipment purchases that happen as a result of user requests, which only occur among about 42% of decision-makers. While there is some overlap among purchase motivations, most of the time, purchases are only made when necessary.
When this process is considered against buying cycles, it’s clear that awareness of equipment needs and consideration of new equipment purchases is not what motivates buyers. While hospitals certainly want to constantly improve patient care and keep up to date with the latest models of equipment, most purchases happen out of necessity, not out of a desire to stay on top of healthcare innovation.
American hospitals are facing significant funding issues. Paired with increasing demand for patient care, it’s easy to see how publicly funded hospitals are working to consolidate costs, reduce spending, and streamline the buying cycle.
From consideration to purchase to installation and use, the less money needed to make a purchase and the less time needed to implement new equipment or products, the more likely those making purchase decisions are going to gravitate toward sellers that meet those needs. Contact Altus to learn how our workstations on wheels fit into your hospital’s buying cycle.