Report: Hospitals Cut Spending on Devices as US Economy Falters

The U.S. economic slowdown has started to affect the medical-device industry as hospitals reduce spending on equipment and technology to ease financial pressures, according to a report from the American Hospital Association. The report also found that some patients may consider delaying certain procedures and elective surgeries that require significant out-of-pocket expenses.

This financial pressure has bled over to the medical-devices sector, where investors are worried sales will suffer as hospitals cut back on spending and patients postpone treatment plans. Companies such as Intuitive Surgical Inc. and Covidien Ltd., which make expensive surgical robots and common medical products, respectively, have faced such concerns.

Hospitals “could be facing uncertain times as their financial health falters and ability to borrow funds for improving facilities and updating technology is squeezed,” the American Hospital Association’s report said.

The non-profit group’s report, which is based on survey results from 736 hospitals and a Web-based reporting system, echoes trends financial analysts have recently noted based on their own surveys and industry checks.

More than 30% of respondents in the new survey reported a “moderate to significant decline in patients seeking elective procedures,” the association said, while nearly 40% of hospitals reported a drop in admissions overall. Hospitals are also seeing more patients who can’t pay.

Fewer elective procedures could be troublesome for makers of replacement joints such as Zimmer  Holdings Inc., Stryker Corp., Smith & Nephew PLC and Johnson & Johnson’s DePuy subsidiary. Orthopedic procedures to replace damaged hips and knees can resolve painful and often debilitating arthritic problems, but also carry sizable out-of-pocket costs.

Orthopedic companies didn’t report issues on recent quarterly calls, but the possibility of a slow-down remains a big question.

“I would say at this point it is not unreasonable to believe that orthopedic growth rates might decelerate modestly because of the general economy,” said Jeffrey R. Binder , president and chief executive of joint-maker Biomet Inc., on that company’s recent quarterly call.

Health-care is often a safe haven in times of economic trouble, but that theory may be eroding this time around. Treatment that can be delayed, or requires hefty payments even from insured patients, is vulnerable. The economy is clearly delaying people, Gary Ellis , Medtronic Inc.’s chief financial officer, said in a recent interview. Chairman and Chief Executive Bill Hawkins , speaking in the same interview, said the company’s businesses for diabetes pumps, ear nose and throat tools and spinal products have some economic vulnerability.

Hawkins noted that hospital administrators are seeing volumes for some orthopedic procedures decline a bit. Patients “may just tolerate the pain,” he said. But he also noted that Medtronic overall doesn’t have major economic exposure. The company’s big heart-device products, such as pacemakers and implantable defibrillators, treat serious issues.