A Checkup on Hospital Capital Spending and Macro Risks

Overview:

• We surveyed 20 U.S. hospital executives to better understand how macro headwinds are affecting capital equipment spending decisions.
• Despite modest budget increases, purchasing behavior among our surveyed hospital executives remains cautious.
• Three-quarters of the executives indicated macro factors are impacting their planned capital equipment purchases, with 40% planning to cut/defer capital equipment spending as a result.
• These survey findings suggest there is incremental risk in the second half of 2025 (2H'25) for companies with greater exposure to capital sales.

The TD Cowen Insight

Tariffs, elevated interest rates and threats to Medicaid present risk to hospitals' ability to spend on capital equipment. Our survey of 20 U.S. hospital executives suggests these headwinds are weighing on purchasing decisions. The survey findings lead us to believe MedTech companies will need to offer flexible financing and procurement options to navigate the challenges posed by the macro environment.

Our Thesis

Our survey of 20 U.S. hospital executives suggests there is an elevated risk of delayed capital spending on medical technology in the back half of this year. We suspect the current consensus thinking on this topic is mixed given the wide range of commentary provided by company management teams in the sector. Macro pressures, which have arisen in recent months, present a potential headwind to hospital capital equipment spending across the US.

In particular, tariffs have drawn attention and were a frequently discussed topic for medical technology (MedTech) companies through the first quarter (1Q) earnings cycle, as numerous management teams called out the potential inflationary impact by which tariffs could affect their respective businesses. We think the quantified impacts of tariffs called out by management teams were lower than some had expected and likely provided a positive surprise for some investors who were anticipating stronger guidance headwinds. We suspect the reason for the lower-than expected tariff headwinds was likely due to confidence from manufacturers that they would be able to pass inflationary costs on to their hospital customers. Tolerance for such price increases from hospital customers, specifically for capital equipment, seems tenuous given the pressures hospitals have been facing like higher rates for capital financing and, more recently, threats to Medicaid.

We expect these headwinds and their potential impact on capital equipment spending to again be a focus during the upcoming second quarter (2Q) earnings cycle. Given the uncertainty we see in this current landscape, we conducted a survey of hospital executives to better understand their projections on the capital equipment purchasing environment and their spending forecasts for 2H'25 and 2026.

What Is Proprietary?

Our report includes qualitative and quantitative responses from key decision makers at hospitals in every corner of the country ranging in size from 250 to 1,000-plus beds. The median capital budget for medical equipment across our sampled executives' systems is US$15 million. Based on our experience running surveys of hospital executives in the past, we think this median budget is representative of typical budgets for hospitals across the country. We believe the information captured in our survey is highly relevant to MedTech and Health Care investors as it captures real-time sentiment on the outlook for capital equipment spending.

Our survey provides an on-the-ground perspective of capital equipment spending and how decisions to acquire medical technology have been evolving over the last several months. We also point out that these survey results follow our recent inaugural TD Cowen Hospital Summit event that we hosted live in June. The takeaways of this report align with the feedback provided by hospital executives at the summit as they too had called out potential headwinds to capital spending from macro pressures.

Financial & Industry Model Implications

The results of our survey have left us with a more cautious outlook for capital spending throughout the remainder of 2025. The tone of responses captured from our surveyed hospital executives clearly signal that macro pressures, namely tariffs and their inflationary follow-on effects, are weighing on the execution of capital purchases. For example, 75% of our surveyed executives indicated that macro factors are impacting their planned capital purchases, with 40% of the group suggesting that they are planning to cut or defer capital equipment spending as a result.

What To Watch

With the results of this survey in mind, we will be looking for updated commentary on capital spending from MedTech manufacturers during the second and third quarter earnings cycles through the remainder of this year. In listening to this commentary, we will also be curious to hear management teams describe the potential ways in which they plan to offer increased flexibility to customers looking to acquire capital items.

Aside from earnings commentary, we will also be tracking policy updates in Washington. Specifically, we'll be following the implementation of the budget reconciliation bill (One Big Beautiful Bill Act) that was recently passed by Congress as the bill incorporates threats to Medicaid funding through stricter eligibility requirements. Seeing as Medicaid represents a substantial portion of the revenue that flows through to some hospitals, cuts to this funding would have clear negative effects for some hospital cash flows. This would only exacerbate existing margin pressures being felt by some hospitals caused by inflation, labor market challenges and rising costs of capital. Reduced Medicaid funding would likely result in hospitals adopting more conservative capital expenditure plans by delaying, or even canceling outright, the acquisition of new medical equipment. Importantly, we point out that even before the passing of the budget reconciliation bill in July, hospitals going through budgetary planning meetings in recent months may have been forced to make conservative assumptions around capital outlays in anticipation of reduced Medicaid funding.