How Can A Subscription Billing Model Alleviate Healthcare Equipment Costs?

There has been an increasing chatter surrounding affordable healthcare.
Patients have been demanding affordable and quality treatment for a long time.
However, the costs seem to only escalate. Hospitals are finding it tough to reach a balance between providing quality healthcare and managing hospital expenses.
Hospitals spend close to $93 billion on healthcare equipment. To add to the woes, hospitals have to also incur costs on the complete lifecycle of the equipment, i.e. installation, maintenance, repairs, etc. The more complex the equipment, the more expenditure for the hospital. In a bid to save expenses, hospitals tend to use the equipment even beyond its ideal usage duration. Sometimes the equipment becomes redundant due to rapid changes in the technology and healthcare industry. Outdated technology and non-functioning and inefficient equipment are common challenges in many hospitals in developing countries. Some country hospitals are unable to carry out even the most basic emergency surgical interventions due to lack of the right equipment, resulting in patient’s demise or disability.
It’s time that hospitals find ways to reduce the total cost of ownership (TCO) on equipment without compromising on the quality of healthcare.
One way to manage that cost is by implementing the subscription billing model.

What is the Subscription Billing Model and How Does it Benefit the Hospitals?

In the subscription billing model, the hospital is given equipment on lease for a specified time, such as for fixed months or on an annual basis. While this benefits the manufacturers as they will continue to own the equipment and earn recurring revenue from hospitals through subscription, it has also proven to be beneficial to hospitals.

Reduce CAPEX

The healthcare industry is capital-intensive. A lot of money is invested in skilling employees, real estate, and medical equipment. In fact, medical equipment constitutes almost 50% of capital expenditure. It includes infrastructure costs, installation, maintenance, training costs, etc. One way to reduce the CAPEX is by signing up for the subscription model. Hospitals can save expenses on upfront, one-time payment. They can pay for the equipment monthly, quarterly, or annually depending upon the usage. The subscription cost also includes maintenance and repair of the equipment. So, there is no extra cost involved in the upkeep of the equipment. The subscription model also frees the hospital from the burden of storing their equipment on the premises if it is no longer useful to them. They can cancel the subscription or not renew their subscription once they are done with utilizing the equipment.

Get access to the latest technology and improve patient outcomes

The healthcare industry is progressing at a rapid pace. Manufacturers upgrade the equipment frequently to meet the needs of the hospitals. The short product cycle makes it difficult for hospitals to upgrade the equipment frequently considering the costs involved. However, there is also a catch 22 situation. The quality of patient care gets compromised if the equipment is old or does not meet the current needs of the patients. Some hospitals even put off replacing the equipment due to high expenses. Hospitals have to find a balance between costs and treatment. The subscription licensing enables hospitals to avail the latest technologies without purchasing. The maintenance and repair costs also get included, so there is no burden on the hospital about repairing or replacing equipment. This enables them to reduce revenue wastage, focus on delivering quality care to patients, and improve on healthcare objectives.

Manage hospital budgets better

Yasuhiro Yoshitake, the president and CEO of Nihon Kohden – a Japan-based manufacturer, developer and distributor of medical equipment, said, “Hospitals and health systems are under tremendous pressure to drive down costs and maximize every dollar in their budget.” Considering the overall risks involved in buying new equipment, Yoshitake believes that the subscription billing model can help hospitals manage the budgets and respond to the changing needs of the healthcare industry efficiently. The subscription model gives hospitals the flexibility to pay as per usage. It helps them to have tighter control over their budget as they have to only pay small amounts at regular intervals instead of an upfront cost. They can reduce overhead expenses and streamline the revenue cycle in a better way.

Conclusion

Shifting to a new billing model is not an easy process. Hospitals will have to adapt to the new accounting process and re-engineer their operations accordingly. The onus lies on the manufacturers to guide the hospitals to transition to the new process. They will also have to work closely with hospitals to determine a model that would suit their requirements. Considering that this is a new approach to billing, and it is still at a nascent stage, hospitals might be wary of jumping into this massive transformation at once. The best way to begin is by testing the waters by doing a pilot, analyzing its outcome in terms of ROI and patient experience, and then extend it to the entire hospital. Currently, it is a slow-moving trend. However, sensing an opportunity to gain revenue through this model, hospitals have started to warm up to this idea.
Do you think this will be a game-changer for healthcare? For hospital equipment manufacturers, this could be a massive opportunity – provided they support this model with a new-gen subscription billing solution.
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