Question

Discuss the issue of capital investment in the health care industry. When is it appropriate to consider purchasing versus leasing as an acquisition option? Is it always better to pursue one option versus the other? Why or why not?

Answer 1

The health care industry is considered to be complex when it comes to make an capital investment. It has various issues. This industry is capital intensive. It generally need large amount of capital which sometimes makes it difficult especially for small hospitals. The trend in this industry is almost always changing. The changing condition requires lots of efforts to manage. This industry is largely affected by the government norms. As it is one of the important industry where health of the people is directly affected, so authorities takes a very careful look at this industry. They even change the capital requirement for the new companies coming into the industry. These days when new viruses are coming up making this industry to invest more in capital equipment. They may also invest in research and development activities which is a difficult task. Sometimes, these industry also affected by different country's government. For example, the Indian pharmaceuticals companies is heavily dependent upon the Unites states food and drug administrator (USFDA) when they export the medicines to US. So, any capital investment in this industry is much more difficult and requires lots of efforts.

When the industry trend is changing rapidly, then it is profitable to leasing rather than purchasing. When the demographic patterns changes, this requires lots of changes needs to be done to R&D activities. This requires lots of funds to be invested. In this sector, the government rule changes frequently. In this case, it is better to lease than to purchasing.

In my opinion, it is not always better to purse one option over the other. As this sector comprises of so many players. Each player will have to consider this strategy differently. For example, when the situation is seem to be static, then we can go for purchasing rather than leasing. In the basic medical facilities, it is always better to purchase. When the trend or the pattern is changing so rapidly due to some governmental rules or may be the demographics pattern, it is better to lease. As, this investment is large in nature and irreversible. So, each strategy should be based on the case basis.