Recession batters hospitals but leaves most suppliers unharmed: capital equipment and pharma struggle, but consumables sales show resilience.

By all accounts, the nation's economic downturn is exacting a financial toll on U.S. hospitals. Strained by surging levels of uncompensated care, falling occupancy, and declining surgical volume, particularly in elective surgery, hospital budgets are feeling a pinch not felt for decades, if ever. The effect on providers was covered in the April HMM ("Hospitals push back against declining revenue," on p. 1).

Although hospitals are falling victim to declining numbers, surprisingly, their vendor partners--with a few notable exceptions--are pulling through the economic malaise like good patients on the mend. A review of current business levels for suppliers in various consumables segments shows revenue downslides experienced by hospitals have yet to negatively affect suppliers.

Two important exceptions to this snapshot are capital equipment and pharmaceuticals. Hospitals only require medications for the patients in their beds, and fewer patients translates to slower drug sales in the acute care market. Like many edgy American consumers, scores of hospitals have frozen big-ticket capital equipment acquisition plans. Manufacturers of those products are selling into the teeth of a very strong headwind. Few would be surprised if several of those companies fail to answer the bell by year's end.

Signs say the outlook is far different for producers of consumable medical goods.

Larry Dooley, vice president of group purchasing at ROi, a small St. Louis-based GPO, says his talks with the supplier community suggest that certain segments are hanging tough, if not thriving. "This is only my personal observation, but at all supplier meetings, I have found that if a supplier is in a daily use business--that is, 'patient touch products'--every supplier says business is good," Dooley says. "The only suppliers seeing dramatic cutbacks are the capital equipment suppliers, but the day-to-day companies, like 3M, Bard, BD, and Medline, are doing fine. Maybe it hasn't hit them yet, but they all say the same thing."

Michael Weinstein, who analyzes the medical device segment for J.P. Morgan in New York City, believes device companies won't fall victim to a sliding economy. "Hospitals are as strained today as they've ever been, and they will continue to be pressured to help improve the system," he writes in a recent report. "Yet this shouldn't mean some big negative hit to device companies. For that to happen, the government would have to completely overhaul the current DRG system and change the way hospitals and supply companies get paid (by the hospitals)."

That viewpoint resonates with Jim Clemmer, president of the vast medical supplies unit of Covidien, the former Tyco Healthcare division based in Mansfield, MA. Covidien's branded products range from sutures and pulse oximetry supplies to endomechanicals, contrast media, and electrosurgical devices. Clemmer describes overall Covidien business as strong, but with a proviso: "There has been some volume slightly declining mostly due to fewer elective surgeries and lower occupancy, and there have been small declines in unit volume in certain product categories."