1. 28 • monitor • MAY/JUN 2016
Figure 1), healthcare spending in the U.S. (excluding
investment expenditure in the sector) was 16.4% of
GDP in 2013 — almost double the OECD average
of 8.9% and much higher than the next three big
spenders: the Netherlands (11.1%), Switzerland (11.1%)
and Sweden (11.0%).4
Despite this spending, international peer reviewed
medical journal BMJ ranked the U.S. last in overall
quality of care among 11 industrialized nations in a
2014 report.5
Controlling Cost & Improving Quality
These statistics fuel the ongoing push to reform the U.S.
healthcare system, specifically when it comes to cost
and quality of care.
“Today, all of the leading payers are responsible
for two things: patients getting quality care, but at an
affordable price,” says medical reimbursement consul-
tant Kathryn Barry. “But you have to squeeze on the
affordability, and that’s the position we’re in right now.”
4 “How Does Spending in the United States Compare?” OECD
Health Statistics 2015. Organization for Economic Co-operation
and Development. July 7, 2015. Accessed April 8, 2016.
5 BMJ 2014; 348 :g4080
W
hether the candidates are for it or against
it, healthcare reform has been a hot-button
political issue for more than a century. In
1912, the first U.S. healthcare reform supporters backed
Progressive party candidate Theodore Roosevelt, who
lost to Woodrow Wilson.1
On November 19, 1945,
President Harry S. Truman became the first sitting U.S.
president to endorse a national healthcare program,
although his plan was based upon policy developed by
his predecessor, Franklin Delano Roosevelt.2
The issue has only escalated since then, and
with good reason. The U.S. healthcare system is
the most expensive in the world. According to the
World Health Organization, healthcare costs more
per person in the U.S. than in any other UN member
nation except East Timor.3
According to an Organization for Economic
Cooperation and Development (OECD) report (See
1 Igel, Lee. "The history of health care as a campaign issue" (PDF).
Physician Executive. 34 (3): 12–13. PMID 18605264. Retrieved
April 8, 2016.
2 Ibid
3 “World Health Statistics.” World Health Organization. 2009.
BridgingtheDivideinHealthcareVendorFinance:
ProvidingValueinanIncreasinglyComplexLandscape
BY RITA E. GARWOOD
Healthcare reform in the U.S. has led to a focus on cost and quality of care, which has sparked rapid
consolidation within the industry and shifted the decision-making process to the C-suite. To grow and
acquire vendor relationships in the healthcare industry, equipment finance companies must help their
partners provide the advanced technology that doctors want through solutions that ensure the metrics
and total cost of ownership the CxO is targeting.
JOHN SPARTA
Vice President,
Healthcare Sales,
Program Management,
DLL
Figure 1 — Health Spending As a Share of GPD
Source: OECD Health Statistics 2015

2. MAY/JUN 2016 • monitor • 29
“It’s a whole different relationship, a different conversation with
different requirements. You still have to keep the doctors, nurses and
clinicians happy, but the money is going to come from the C-suite, and
they’re going to decide what equipment to buy and when.”— John Sparta, Vice President, Healthcare Sales, Program Management, DLL

3. 30 • monitor • MAY/JUN 2016
Rapid Consolidation
Consolidation has been occurring at a rapid pace in the
healthcare industry. According to data from PwC, 2015
was a record-breaking year for mergers and acquisi-
tions within the healthcare sector, with 1,460 transac-
tions worth approximately $563 billion reported.6
PwC
anticipates that 2016 could set another record in terms
of M&A transaction volume.7
“Stand-alone regional and rural hospitals are going
away,” says Sparta. “They aren’t disappearing but are
becoming part of a system or IDN (Integrated Delivery
Network), and within those groups are going to be physi-
cian’s practices. You’re also going to see home health-
care companies and urgent care centers get acquired
— all branded within a network to create better patient
care, but also a better business model that can thrive
under the new healthcare reform regulations.”
“In the last three to five years, we’ve seen that prob-
ably 75% of physicians are now employees of health-
care systems,” says Barry. “Physicians are selling their
practices; they can’t fight any longer in private practice.
They need the overhead leverage economic opportunity
of being part of a bigger organization.”
Healthcare providers are not the only ones experi-
encing this spike in M&A activity. Insurance companies
are following suit.
“The leading national payers are all trying to
consolidate,” Barry says (See Figure 2). “One is trying
to buy the other, so we’re going through consolidation of
private payers. With that consolidation, you then have
leverage to negotiate, and right now they are aggres-
sively negotiating discounted fees and rates from physi-
cians and facilities. And that’s causing a domino effect
for the healthcare provider world to also consolidate.”
Bridging the Divide
Given the increasing complexity of the healthcare land-
scape, how can equipment finance companies continue
to provide value to their vendor partners who manufac-
ture medical equipment?
“We pride ourselves on our ability to help our
vendors get to the C-suite where we can help bridge the
divide between the clinical nature of the equipment and
the business solution really needed by the CFO of the
hospital or healthcare organization,” says Sparta.
Traditionally, healthcare device salespeople have
been knowledgeable from a clinical perspective. “That’s
their background,” Sparta says. “They can tell you all
about the equipment, and they can really hold their own
with doctors, nurses and clinicians when it comes to the
capabilities and benefits of the equipment.”
However, Sparta says that clinical expertise often
does not translate very well to the CFO who might chal-
lenge, “I know it’s the latest and greatest, but show me
why this is a good acquisition for our healthcare orga-
nization. What’s the total cost of ownership and the
impact on quality measures and reimbursement?”
6 “U.S. Health Services Deal Insights.” PwC. February 2016.
7 Ibid
This goal of keeping costs low has affected reim-
bursements from public and private payers, which, in
turn, have led healthcare organizations to change the
decision-making process for the acquisition or replace-
ment of medical equipment. “Decisions that used to be
clinically-driven and made by physicians are now being
made in the C-suite,” says John Sparta, vice president
of Healthcare Sales and Program Management at DLL.
Sparta says that while there is still a clinical component
in the decision-making process, healthcare organiza-
tions need to determine whether an equipment acquisi-
tion makes sense from an investment perspective.
“We’re seeing a lot more joint decision making, a lot
more of the chief medical officer and the CFO making
the decisions as they look across the spectrum of care
and what the community needs,” says Rick Gundling,
SVP of Healthcare Financial Practices at the Healthcare
Financial Management Association. “When we talk
about increasing value to the purchaser, patient or
consumer, part of that is quality over cost. What’s the
cost to the purchaser to buy it?”
“If you’re on the device manufacturer side, you
can create a great product, but you must prove that
it’s better than the current standard of care and show
specifically how it’s better,” says Barry. “How did the
patient improve? How will it save money to the overall
healthcare system? If it is just adding cost, we can’t
afford it anymore.”
“It’s a whole different relationship, a different
conversation with different requirements,” says Sparta.
“You still have to keep the doctors, nurses and clini-
cians happy, but the money is going to come from the
C-suite, and they’re going to decide what equipment to
buy and when.”
This shift in decision-making is only one of the
complexities facing the healthcare industry today.
“Since the Affordable Care Act passed about five
or six years ago, it’s accelerated a lot of the changes in
healthcare: new payment models, new delivery systems,
new ways to joint venture and affiliate with other organi-
zations to make sure that there is a more clinical integra-
tion across the spectrum,” says Gundling.
“Stand-alone regional and rural hospitals are going away.
They aren’t disappearing but are becoming part of a system or
IDN (Integrated Delivery Network), and within those groups
are going to be physician’s practices. You’re also going to
see home healthcare companies and urgent care centers get
acquired — all branded within a network to create better
patient care, but also a better business model that can thrive
under the new healthcare reform regulations.”— John Sparta, DLL

4. MAY/JUN 2016 • monitor • 31
“One of the key things that we like to bring to the table is helping
our vendors/manufacturer partners sell effectively to large IDN’s and
healthcare organizations,” Sparta says. “We can ask the right questions,
understand the requirements of the CxO, as well as the clinical need,
and translate that into the right kind of proposal or solution for that
organization.”
Providing this value to vendor customers requires not only a deep
understanding of the myriad of complexities facing the healthcare sector
today, but also a firm handle on the financial aspects of a deal.
“All the members within the healthcare business here at DLL have
extensive experience in the healthcare industry,” Sparta says. “They have
either been working for us or within the financing side of the healthcare
business for long periods of time.”
“Our industry specialization throughout the whole value chain allows
us to create the right solutions for our partners, take the appropriate
amount of risk for us as an organization and be good at it,” Sparta says.
“You need to be able to get in front of a group of healthcare sales-
people and speak their language,” Sparta says. “You need to be able to
ride with them when they go see a customer and not be a fish out of water.
You have to be able to help understand the conversation, understand
the needs and complexities of the healthcare industry and bring value
to the table.”
Satisfying All Sides
In any vendor relationship, an equipment finance company must consider
the needs of two parties: the customer (the medical equipment manufac-
turer) and the buyer (the healthcare provider).
“We traditionally work with a manufacturer, vendor or distri-
bution channel,” Sparta says. “We’ll have someone assigned to
that relationship who is going to understand how that organiza-
tion sells, what their channel is and what drives that channel.”
Sparta says DLL’s primary focus in a vendor relationship is helping the
vendor partner achieve four primary goals: accelerating sales, creating
larger sales, retaining margin and locking in future sales by creating
solutions that promote customer retention.
A key component in establishing an ongoing relationship between the
vendor and its customer is offering financing options that fit the health-
care provider’s needs. In some cases, a traditional capital or operating
lease will work best, while in other scenarios a hospital might want to try
managed equipment services or pay per use options.
“Imagine the acquisition of an ultrasound machine that is going to
be used for the next four years,” Sparta says. “Would you want to pay
for four years of scans upfront, or would you rather pay for them as the
scans are performed? It’s a great opportunity for the leasing and finance
industry to provide solutions that support a more usage-based model.”
Sparta says DLL’s core product in the healthcare industry is the fair
market value (FMV) lease, which enables healthcare providers to stay
current with technology. “With an FMV lease, healthcare providers can
choose to upgrade their equipment when new technology comes out,”
Sparta says. “They can maintain the latest equipment which should give
them the best patient outcomes as well as help them avoid emergency
expenditures when software gets outdated or the equipment just gets old
and needs to be replaced.”
While equipment finance companies can provide dynamic financing
options that keep the healthcare industry on the cutting edge of progress,
we can’t say the same for politicians and policy makers in the U.S. In fact,
they will probably be debating healthcare reform for another century. m
RITA E. GARWOOD is managing editor of Monitor.
“You need to be able to get in front of a group of healthcare
salespeople and speak their language. You need to be able
to ride with them when they go see a customer and not be a
fish out of water. You have to be able to help understand the
conversation, understand the needs and complexities of the
healthcare industry and bring value to the table.”— John Sparta, DLL
Figure 2 — Managed Care Consolidation