3 Trends in Healthcare and the Benefits of Equipment Financing

10/25/2024

For generations, many have called the healthcare business “recession proof.”¹ After all, demand for healthcare is inelastic. The need for surgery and other lifesaving treatments persists through fat and lean economies.

Economic Pressures on Healthcare Providers

That said, macroeconomic conditions do affect healthcare providers. Rising unemployment, for instance, can lead to the accumulation of bad debt for hospitals.²At the moment, fewer than 15% of C-suite healthcare executives feel a recession is unlikely, according to a survey by Sage Growth Partners.³

At the same time, inflation pressures healthcare organizations in multiple ways. Payers facing higher expenses may reduce coverage or pass on costs to patients, some of whom will struggle to pay. Indeed, in a 2023 survey, two-thirds of respondents said inflation makes it hard to pay medical bills; a year earlier, just over half said the same.⁴ What’s more, McKinsey reports a 200-basis point gap between hospitals’ inflation-driven expenses and the reimbursement rates they’re currently receiving.⁵

The Rising Threat of Cybersecurity Crises

Yet another challenge hitting healthcare systems in the pocketbook is the proliferation of cybersecurity crises. Responding to the Change Healthcare cyberattack increased operating expenses for many organizations, the American Hospital Association reported.⁶

Strategies for Financial Resilience and Growth

Large health systems with better cash reserves and stronger assets are better positioned to withstand these headwinds. Concurrently, healthcare is evolving based on patients’ needs, delivering more services outside of the traditional hospital setting. Having a strong cash position allows providers to staff up ambulatory sites and support their operational initiatives.

One way to maintain a strong cash position is to finance the equipment and technology needed to evolve. Financing allows a company to structure equipment purchasing for a fixed rate and a fixed set of time, without having to dip into cash or working capital. For hospitals, this is especially important. The amount of days of cash on hand is an important measure of hospital liquidity; an organization needs a certain amount to meet the requirements of lenders and credit rating agencies.

At First Horizon Bank, we help clients reach their equipment purchasing goals and evolve as the healthcare industry changes. Here are three trends that indicate the direction in which healthcare is evolving:

Trend #1: AI Innovations in Healthcare

The nascent field of artificial intelligence holds both promise and peril for healthcare.⁷ On the promise side, AI can help caregivers help patients more efficiently than ever, and even empower them to find better treatment paths by mining previously unconnected data, McKinsey reports.⁷ On the peril side, healthcare organizations must be wary of the new security risk to patient data that AI products and services could bring. Practitioners will also have to scrutinize suggestions or conclusions from AI tools, since at this stage of the technology’s development, “hallucinations” – nonsensical or inaccurate responses – persist.⁸

AI is already being used on many healthcare fronts:

Patient records: Custom AI apps can record patient/doctor interactions, adding relevant information to the patient's file in real time and freeing the practitioner to focus on the patient. Such apps can even help the clinician fill in information gaps by prompting them to ask questions they may have neglected.
Medical imaging: A literature review published in the journal Bioengineering concluded that AI has revolutionized the use of medical imaging for patient care, with its faster results and enhanced detection in early stages of illness “ultimately delivering better outcomes for patients.”⁹ Use cases in which AI has been transformative include cardiovascular abnormalities, neurological issues such as Alzheimer’s, cancer screening, and bone fractures.¹⁰
Diagnosis: Medical images are just one type of patient data that AI algorithms can quickly synthesize to aid clinicians with diagnosis. AI-powered Clinical Decision Support Systems (CDSSs) can also analyze vital signs, test results, the patient's full medical history and demographic information to help caregivers make informed diagnoses.¹¹

Healthcare software provider Folio3 estimates that AI could reduce healthcare costs by 5% to 10%, saving up to $360 billion annually. Of course, systems that incorporate artificial intelligence are investments. Folio3 estimates that implementing new software and hardware incorporating AI applications costs organizations between $20,000 and $1 million.¹²

Trend #2: Ongoing Investments in Ambulatory Care and Telemedicine

Technology is key to the healthcare industry’s transformation, both on the clinical and administrative side.

Advances in clinical approaches and technology, including new developments in anesthesia and pain control, as well as minimally invasive surgical procedures, are enabling numerous procedures (for example, knee replacements and tonsillectomies) to migrate into the ambulatory setting, a McKinsey report shows.¹³

Telehealth will continue growing. The market was valued at $71.9 billion in 2022, and Global Market Insights predicts annual growth of 13% through 2032.¹⁴ Industry experts say the era of “telehealth 2.0” has begun, with organizations shifting away from just urgent care visits to focus on more specialized care.

Other areas of growth:

Wearable tech. More and more consumers are wearing wristbands and rings that track heart activity, sleep and even fertility. Beyond the mass market, specific devices for patients with chronic conditions such as diabetes have also advanced. The global market for wearable healthcare devices is expected to grow to $69.2 billion by 2028, according to consulting firm MarketsandMarkets.¹⁵ This growth is likely being driven by new offerings hitting the market and more healthcare providers becoming comfortable using them.
Mental health apps. Mobile mental health apps are expected to branch out into more conditions, including serious mental illness and substance use disorders. Grand View Research puts the value of mental health applications at $6.25 billion in 2023, and predicts the field will grow 15% a year through 2030.¹⁶
Digital women’s health. The new wave of women's digital health funding is pushing beyond historical norms of pregnancy and fertility support to more comprehensive offerings, from primary care to chronic disease management and menopause. Health systems will also continue to invest in population health management systems and electronic health records (EHR) optimization. Chief information officers and other health IT leaders depend on the data from their deployed record systems and most keep EHR optimization top of mind each budget season.

As with AI, both telehealth and ambulatory care are a “spend money to save money” opportunity for healthcare organizations. The availability of telehealth options leads patients to substitute remote consultations for in-person visits and access care early enough to prevent expensive problems. Outpatient procedures are a win/win: more popular with patients and more profitable for providers.¹⁷

Investments needed to expand telemedicine include software and servers, audiovisual equipment and biometric devices that can monitor patients at home. For ambulatory care, hospitals are investing in real estate to open new outpatient centers and filling those new buildings with the equipment needed to provide procedures. In both cases, First Horizon is ready to finance the upfront expenditures, allowing healthcare systems to provide the care patients want and potentially improve profit margins, without depleting cash reserves.

Trend #3: Changing Models and Rising Costs of Staffing

A survey by the National Council of State Boards of Nursing found that 20% of licensed U.S. nurses are likely to leave nursing by 2027.¹⁸ With many professionals reaching retirement age, staffing issues are likely to worsen over the coming years. Indeed, a report by Physicians Thrive predicted a shortage of 124,000 physicians by 2034.¹⁹

After several years of growth, the use of staffing agencies for healthcare professionals including nurses and a range of therapists and technologists appears to have peaked in 2023, according to Staffing Industry Analysts.²⁰ While use of staffing agencies is still high, hospitals may be realizing that they need to develop more sustainable ways to fill the industry’s needs in the future.

The increased leverage of artificial intelligence, telehealth, and ambulatory care can help assuage continued staffing shortages. But healthcare organizations also need to improve their ability to recruit and retain skilled staff. Beyond offering ever-higher pay, healthcare organizations can invest in employee recruiting and retention programs that include mentoring, recognizing employee contributions and offering a choice of scheduling options. Some such changes may be relatively low-cost to implement, but an initial investment may be needed to design new recruiting and retention programs.

First Horizon’s Approach

First Horizon has a specialized healthcare team with deep knowledge about the industry. Customized healthcare industry loans and leases are designed to keep a business up to date and minimize upfront investment while improving liquidity and cash flow. The bank can finance everything from equipment and tenant improvements to software and technology upgrades. Features and benefits include 100% financing options, graduated and deferred payment structures, software-only financing, and complete project financing.

While the future of healthcare is full of both challenges and opportunities, it’s clear health systems will have to be strategic about their investments to stay competitive and serve their patients well. Financing key equipment purchases will keep their balance sheets strong, allowing them to make investments for positive returns and execute on strategic plans to make the business more profitable.

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