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Hospitals’ Spending Exception Creates Opportunity for Equipment Lenders, Lessors

April 11, 2012, 06:00 AM
Filed Under: Healthcare

Despite negative conditions prompting the continued deferral of capital expenditures whenever possible, U.S. hospitals will make one major exception this year—they will spend on information technology (IT) to facilitate the implementation of electronic health records (EHR), according to a new white paper by The Alta Group.  PayNet, Inc. was a contributor to the paper.

The white paper provides an overview of the current hospital environment in the U.S. and related opportunities for the equipment finance industry. Of specific note is hospitals’ use of EHR, required by federal health care reform. Savings due to the technology have been estimated at between $50 billion and $200 billion annually.

Spurring on these savings is Medicare’s Electronic Health Record (EHR) Incentive Program, which rewards hospitals’ early conversion from paper records and, as of 2015, begins issuing penalties in the form of Medicare disbursement cuts. Consequently, the paper says, hospitals are now rushing to invest in IT, creating one of the largest equipment finance opportunities currently available.

But risks accompanying the opportunity are considerable. Historically, health care default rates reinforce the attractiveness of the sector. Yet the study forecasts an increase in defaults by health care providers for most major equipment groups this year. Defaults on health care equipment are projected to rise to 2.3% by year-end, the paper says, representing a 15% increase over the rate of default in 2011.

“At a minimum, conducting business in this market requires specific industry expertise, constant monitoring of market dynamics, a strong and disciplined underwriting culture and capability, and experienced senior management,” notes the paper’s lead author, Daniel G. Morse, director and leader of Alta’s health care finance practice. Complications include hospitals’ reduced access to credit and capital, along with continued difficulties in the financing of intangibles.

Even with this latest projected jump in defaults, however, the white paper reports that health care transactions offer some of the lowest defaults of all sectors during times of economic stress. What’s more, an estimated 35-40% of medical equipment in the U.S. is leased, representing a market opportunity of $133 billion to $200 billion annually. Medical equipment is currently the fourth largest category of capital asset investment in the U.S, behind software, computers/peripherals and communication equipment.

In addition, the Centers for Medicare and Medicaid Services (CMS) estimates that U.S. health care expenditures will grow by an average 8.9% per year to $4.5 trillion in 2019.

“Increasing demand for health care services by an aging population, coupled with ever more limited public resources, will positively influence medical equipment expenditures through 2030,” the paper concludes. “The conflicting demands will place tremendous pressure—and a premium—on improved productivity.”

The Alta Group is the equipment leasing and finance industry’s preeminent global consultancy, offering clients the unique combination of experience, expertise and executable counsel. Alta’s more than 90 executives worldwide have held senior management positions in public and private equipment leasing companies, manufacturers, banks and other financial services institutions. The Alta Group’s major practice areas include alternative energy financing, captive & vendor programs, government financing, health care financing, legal support services, management consulting, mergers & acquisitions, and professional development. The firm is observing its 20th anniversary. To learn more, please visit

PAYNET, Inc. is a data analytics firm providing information on small business credit to increase access to capital, produce economic growth and jobs and significantly reduce the cost of doing business. We collect and track data on small business loans from hundreds of US and Canadian lenders each month turning it into actionable risk intelligence and market insight . Our proprietary database is the richest and largest collection of small business loans and leases encompassing more than $900 billion on over 19 million contracts.

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