Buying & Leasing Medical Equipment: What You Should Know

February 13, 2020
Posted in: Uncategorized

Table of Contents

 

Whether you’re starting your first practice or have been in business for years, you already know that the cost of medical equipment can wreak havoc on your budget. Fortunately, there are ways to procure the equipment you need and still breathe easily. You need to consider the advantages and disadvantages associated with the various procurement options, however.  

In this article, we’ll discuss the advantages and disadvantages of buying vs. leasing medical equipment. We’ll also discuss your options for buying equipment (new vs. used), financing options, and what you need to consider if you decide to go the lease route. 

 

     hospital equipment

 

Options for Buying Medical Equipment

 

  • Buying New Some medical equipment is best purchased new.  
  • Buying Used – Although buying used or refurbished medical equipment may be more economical, it can also be tricky. What really constitutes refurbishment and is refurbished equipment high-quality, safe, and effective? 

 

Should I Buy New Medical Equipment?

 

Thanks to technological advances, medical equipment provides an opportunity for healthcare professionals to offer a greater quality of care to their patients.  When in the market for medical equipment, hospitals and practices will often ask themselves if they should buy new or used. This isn’t always an easy decision because there are several factors that must be taken into consideration. 

When faced with budgetary constraints, cost will likely be the primary factor that influences the decision. In addition to the price of the equipment, there are other cost considerations that will affect the decision. 

 

Advantages of Buying New Medical Equipment

 

Let’s take cost out of the equation for a minute and look at the advantages of buying new medical equipment instead of used.

  • Warranty – New medical equipment comes with an Original Equipment Manufacturer (OEM) warranty, which is a promise that the manufacturer will compensate the buyer in the event of any defects or losses incurred. An OEM warranty is valid as long as the equipment is used for its intended purpose. The warranty typically covers the equipment’s hardware and software components. Used/refurbished medical equipment usually has a limited-time warranty offered by resellers which often doesn’t cover all hardware and software defects. Resellers may offer extended warranties for an additional cost.
  • Better post-sales service – New equipment generally offers better post-sales service which includes the handling of technical issues by the OEM or in conjunction with the distributor. The OEM’s staff has received adequate technical training to handle any issues you may have with your purchase. With used equipment, you may have to contact the reseller who may not possess the necessary skills and expertise.
  • Availability of spare parts – Spare parts and accessories are more readily available for brand new medical equipment throughout its expected useful life. In addition to the OEM, a massive network of authorized dealers and repair centers can accommodate buyers. With refurbished equipment, parts and accessories may be difficult to procure as the equipment becomes obsolete. This can make the equipment unfit for use.
  • Latest technology – Advancements in medical science are constantly being incorporated into new equipment. Because medical equipment plays a vital role in enabling healthcare professionals to improve quality of care and save lives, research into improving its functionality is ongoing. Used equipment sometimes lacks the latest technology and may not perform as intended under certain circumstances.
  • Easier to file insurance claims – Filing insurance claims is an important consideration when deciding whether to buy new or used equipment. It’s often easier for healthcare professionals to make insurance claims when they’re using equipment that incorporates the latest technology.

Aside from cost, the above factors lead some healthcare professionals to opt for new medical equipment over used.

 

machine

 

Buying Used or Refurbished Medical Equipment

 

As medical offices seek to stretch their medical equipment budgets, buying used or refurbished medical equipment appears to be an attractive option for replacing existing items or expanding a practice. But, is refurbished equipment safe? The U.S. Food and Drug Administration (FDA) has concerns regarding refurbished equipment, so much so that they’ve established regulatory requirements and expectations for companies that service, refurbish, rebuild, recondition, remarket, and remanufacture medical devices. For example, manufacturers and assemblers of certified X-ray components are responsible for providing assembly instructions adequate to ensure compliance of their components with the applicable performance standards when installed properly.

 

Defining Refurbished Medical Equipment

 

When it comes to defining “refurbished”, there’s no universally accepted definition. Some define “refurbishment” as the complete disassembly, inspection, and replacement of every worn part in a piece of equipment such that the finished product is literally as good as new. However, this definition could also apply to medical equipment that’s been repaired and cleaned up to look like new but is still very much used.

In their continued efforts to ensure the quality, safety, and effectiveness of used medical equipment, the FDA requested feedback from the industry and those who use equipment (i.e. healthcare facilities) that wasn’t purchased as brand new. Participants were asked to give input on the following proposed definitions related to used medical equipment: 

 

  • Reconditioned – A medical device has been restored and/or refurbished to the original equipment manufacturer’s (OEM) original specifications. Under limited circumstances, the device may be restored and/or refurbished to current specifications.
  • Serviced – A finished device has been repaired after distribution for the purpose of returning it to the safety and performance specifications established by the OEM so that it meets its original intended use. Repairing the device can’t change its intended use.
  • Repaired – The device has been returned to its original specifications by replacing non-working parts or parts outside of routine upkeep for the current owner of the device.
  • Refurbished – The device has been restored to a condition of safety and effectiveness that’s comparable to when it was new. This includes reconditioning, repairing, replacement of worn parts, and installing software/hardware updates that don’t change the intended use of the original device.
  • Remanufactured – A medical device has been processed, conditioned, renovated, repackaged, restored, or been subjected to any act that significantly changed the finished device’s performance, safety specifications, or intended use.
  • Remarketed – A previously owned device has been transferred from one party to another by sale, donation, gift, or lease.

The FDA also requested feedback on the benefits and risks of operating used medical equipment. From the 176 responses received, it was felt that the patient should be the main concern of organizations involved in servicing medical equipment. The FDA remains vigilant in ensuring that medical equipment is serviced and repaired by OEM’s in a manner that ensures its safety, quality, and effectiveness.

 

Factors to Consider When Buying Refurbished Medical Equipment

 

As consumers, we’re familiar with the risks inherent in making purchases: items that don’t work as promised, warranties that expire, companies that go out of business after the purchase. In the healthcare industry, these risks are magnified. Facilities that provide medical services need assurance that the equipment they purchase will allow them to safely and effectively care for their patients. The useful life of the equipment should also far exceed its depreciation to ensure a healthy return on investment.

Facilities with limited funds and declining reimbursements have come to rely on remanufactured or refurbished equipment. However, it’s important to note that there are different levels of quality and different refurbishment processes.  To ensure that the refurbished equipment being purchased is safe, durable, and reliable, here are some key factors to consider:

 

  • Purchase directly from the manufacturer – Most OEMs offer remanufactured equipment for those seeking an affordable alternative to new equipment. They have direct access to the parts, product development support, system upgrades, and services for the equipment. OEMs also typically test all equipment as if new since they manufactured it.
  • Compare apples to apples – Often, product offerings and pricing won’t be the same from one company to another. Just because a price is lower doesn’t mean the quality is comparable to other vendors. When comparing offerings, make sure all model numbers, accessories, software, and other components match. Request quotes that include all details that will help you make an informed decision.
  • Request documentation – If you’re considering a purchase from a company you’ve never worked with or heard of before, request:
    • Industry certifications
    • Insurance detail
    • Financial information
    • Regulatory and quality credentials
    • References
    • Check with the Better Business Bureau or online sources for reviews.
  • Make sure there’s a warranty – Quality equipment can still be subject to problems which can occur as early as the first 30-90 days. Make sure you get a warranty in writing and fill out the warranty cards you receive. Get the response time, clinical support and emergency numbers to call in the event of a problem.
  • Include service agreement – Healthcare facilities should have their equipment inspected on a regular basis (at least twice per year) to assure safe operation and to avoid costly repairs later. By including service coverage in the purchase, you ensure the proper and safe working order of equipment.
  • Ask for service team’s credentials – What kind of training has the vendor’s service technicians received? If the vendor you’re considering can’t provide documentation to prove that its technicians have been trained by the OEM, it’s highly likely they haven’t been. The quality of a technician’s equipment knowledge can affect the quality of repairs.
  • Get all manuals, tools, and updates – Operator manuals should be included with the equipment purchase. Also, make sure the vendor being considered has the required tools to perform any calibration needed for proper operation of the equipment.

 

Making a Decision

Should you buy refurbished medical equipment and save some money or resign yourself to paying the price of new equipment? To help in your decision, consider this:

  • Is it a high-tech vital piece of equipment? If it falters would it put the life or health of a patient in peril? If so, opt for new equipment. If it’s a low tech, non-vital piece of equipment, consider lowering costs by going with refurbished.
  • Do you have any experience with the piece of equipment? If so, you’re probably familiar with and can manage its operational idiosyncrasies. If not, you may be better off buying new.
  • Do you have a number of the same units on hand? If so, you can use one of the others while the refurbished equipment is being serviced. If not, new equipment may be your best bet.

 

hospital

 

Tax Benefits of Buying Medical Equipment

 

To make your purchase of medical equipment more manageable, there are tax benefits you may qualify for such as that offered by Section 44 of the Internal Revenue Code. Section 44 provides a significant tax credit towards the purchase of equipment that enables your practice to comply with the applicable requirements of the Americans with Disabilities Act (ADA). For example, if you purchase powered exam tables (that are easy to get on and off of) you may qualify for a tax credit of 50% of the amount that exceeds $250 (but doesn’t exceed $10,250 for a taxable year).

Per Section 190 of the Internal Revenue Code, if you also remove any architectural barriers to make your office more accessible to individuals who are handicapped or elderly, you may be eligible for a deduction of up to $15,000 per year for barrier removal expenses.

 

Leasing Medical Equipment

 

In addition to the decision of whether to buy new or used medical equipment, many healthcare professionals are faced with the decision of whether to buy or lease equipment.  Many companies offer leased medical equipment, which can save you a lot of money as you get ready to open a new practice or expand an existing one. Equipment with short life spans, like CT scanners, is ideal for a monthly lease.

Equipment leasing is basically a rental agreement. Much like leasing a car, you establish terms with the equipment company or a lender and pay to use the equipment you need. You either make payments directly to the equipment company or to a third-party company that finances their leases. 

As with purchasing any product, there’s always the clear advantage of becoming the owner. Purchasing is also the logical choice for products that are expected to last a considerable amount of time and that don’t involve the risk of becoming obsolete in the near future. 

If you’re considering the procurement of a piece of equipment that you don’t have much experience with, ask other medical professionals who use the same or similar equipment about their experiences. You’re more likely to get a better idea of the quality of a machine from someone who’s actually using it every day as opposed to someone trying to sell or lease it to you.

 

Types of Medical Equipment Commonly Leased

 

The following list isn’t exhaustive but is meant to represent the types of medical equipment that are commonly leased by healthcare facilities.

  • Blood Analysis Equipment
  • Cardiology Equipment
  • Ultrasound Equipment
  • CT scanners & Imaging Equipment
  • Defibrillators
  • ECG Equipment
  • Electrosurgical Units
  • Microscopes & Lab Equipment
  • Monitors
  • Ventilators
  • Patient Trolleys
  • Stainless Steel Furniture
  • Radiation Protection Equipment
  • Laser Systems 
  • Operating Tables
  • Medical Lights
  • Blood Pressure Monitoring
  • Sleep Diagnostics
  • Electrocardiology Equipment
  • Hospital Beds & Furniture
  • Dental Office Furniture
  • Dental Instruments
  • Dental Chairs
  • Cerec Dental Crown Machines
  • Dental Milling Machines
  • Orthopedics Equipment
  • X-ray Machines
  • Ultrasound Equipment
  • Neonatal Units
  • Incubators
  • Medical Couches
  • Anesthesia Equipment
  • Respiration Equipment
  • Traction Systems
  • Physiotherapy Equipment
  • Holter Systems
  • Aberrometers
  • Corneal Topography
  • Digital Retinal Camera
  • Vet Tables
  • Autoclaves & Sterilizers
  • Defibrillators
  • Infusion Pumps
  • Podiatry Chairs
  • Podiatry Digital X-ray System
  • Diagnostic Ultrasound
  • EMR Systems
  • Computers & Servers
  • Hospital Management Software
  • Gynecology Equipment
  • Neurosurgery Equipment

 

xray

 

Medical Equipment Lease Types

 

If you’re considering the lease route, here are common medical equipment lease types:

  • Fair market value lease Allows you to obtain the latest equipment at a lower monthly cost. A portion of the equipment’s purchase cost is often deferred to the end of the lease. At that time, you can purchase the equipment at fair market value, return it, or continue the lease on a month-to-month basis.
  • $1 Buyout option Many equipment leasing plans have a $1 buyout option. Because the equipment company holds the title, they own the equipment at the end of your lease term. A $1 buyout means that at the end of the equipment lease term, you can buy the title to the equipment for $1.

 

Medical Equipment Leasing Costs

 

Let’s consider the costs associated with leasing medical equipment:

 

Short-Term Costs 

Depending on your medical office’s financial situation, it may be difficult to secure enough cash to purchase an expensive piece of medical equipment outright. For example, an x-ray system can cost anywhere from $40,000 to $175,000. 

Even if borrowing the money is an option you’re considering, it can still be difficult for a small or mid-sized medical office to meet the down payment requirement. If this is the case for your practice, it doesn’t make financial sense to purchase the equipment outright. Leasing may be your best option.

Leasing doesn’t require a substantial initial cash outlay, which can be of benefit to practices that either are low on cash or prefer to hold on to their cash for other expenditures or for working capital. 

 

Long-Term Costs

If the medical equipment has a long useful life and is expected to only require inexpensive routine maintenance, purchasing the equipment outright will most likely be the best option in the long run. 

If you compare the monthly lease payments over the lease term to the purchase price, it would appear that leasing would never make good financial sense. However, when you own a piece of equipment, you’re responsible for all repairs (outside of any warranty period) and maintenance. This can negatively impact your practice’s cash flow. Since you can’t predict every expenditure that will be associated with the equipment, it’s a good idea to ask other practitioners about their experience with the machine’s upkeep.

If your queries result in the anticipation of some costly repairs down the road, leasing may be your best bet. Just make sure you’re aware of the repair and maintenance costs included in the lease terms. You don’t want to sign a lease agreement only to find out that it stipulates you’re responsible for a considerable number of repair types.

 

Advantages of Leasing Medical Equipment

 

Here are more benefits of leasing medical equipment over purchasing it:  

 

  • Tax-deductible – Since the IRS doesn’t consider certain leases to be a purchase, medical practices can deduct the lease payments from income as an overhead expense on the income statement. This reduces the net cost of the lease and the equipment doesn’t have to be depreciated as it’s considered a technology solution.
  • 100% financed – A lease is equivalent to 100% financing since it doesn’t require a down payment. Medical practitioners can use the money that would have gone to a down payment for other expenses or invest it.
  • Flexible – Equipment that could depreciate quickly should be leased to limit a practice’s chances of being stuck with obsolete equipment. Equipment lessees may be able to add or upgrade to newer technology as needs change at any time during the lease term. 
  • Fast approval process – Because leasing companies often approve applications in as little as a few hours, lessees can quickly procure needed equipment with minimal documentation.
  • Accurate cash forecasting – When leasing medical equipment, practices can accurately forecast cash since they know the amount and number of lease payments, and there are no floating fees.
  • Flexible end-of-term options – At the end of a lease term, there are typically three options available to the lessee. The equipment can be returned, purchased from the leasing company, or the lease can be extended.
  • Easier to finance – With a lease, practices don’t have to meet the requirements like large down payments, client list reviews, and cash flow projections that they would with loan financing. This makes the finance process faster and easier.
  • Improved asset management – A lease gives the lessee use of the equipment for a specific period of time at fixed payments. At the end of the lease, if the lessee opts to return the equipment, the leasing company is responsible for disposing of the asset. The leasing company assumes all risks of ownership.
  • Services bundled into one payment – When acquiring a new piece of medical equipment, “soft costs” like training and support are some of the most vital components of the acquisition. However, they’re often not considered when finalizing the purchase transaction. With a lease, everything from the equipment itself to the soft costs can be bundled into a predictable monthly payment. This makes it easy to budget for all costs associated with the acquisition.

Before finalizing your decision to either purchase or lease equipment, carefully analyze your financial situation and weigh the pros and cons of both. Do as much research as possible so that you make an informed decision. 

 

 calculator

 

Financing Medical Equipment

 

In a medical office, the quality of equipment can have a considerable impact on the quality of care. Your patients want to see modern, cutting-edge equipment when it comes to their health. This includes items such as imaging machines, sterilization equipment, and monitors. They don’t want to see equipment that looks like it was used by Marcus Welby, M.D.  However, the latest tools can cost a great deal of money.

To keep your practice up-to-date with state of the art medical equipment, you need a solid financing plan. Medical equipment financing will allow you to expand your practice and provide your patients with high-quality care without purchasing the equipment outright and depleting your cash reserves. You’ll be able to obtain the tools you need and still have working capital to cover your practice’s ongoing expenses. 

Equipment loans aren’t that different from other types of loans. Essentially, you borrow a lump sum of money from a lender. When you go over the terms of the loan, as with other loan types, you negotiate your interest rate, the length of the loan, and the repayment options.

The biggest difference between an equipment loan and a traditional bank term loan is the restriction placed on purchases and the way the money is handled. With an equipment loan, the money can only be spent on equipment. The lender pays the equipment company directly and you pay the lender in monthly installments. 

The equipment itself will serve as collateral, so there are certain types of equipment that lenders prefer to finance. Lenders prefer to finance equipment that’s essential to the day-to-day operations of a practice as well as equipment with high resale value. For example, if you have an optometry practice, a tonometer is an essential piece of equipment. You know that a tonometer conducts eye pressure tests but to a layperson, it’s the machine that blows the puff of air into the eyes. Other items in the office like waiting room chairs don’t hold value as well and are less likely to be financed. They’re not considered to be crucial to the operation of your practice (although your patients might disagree).

 

Traditional Bank Loans

Traditional bank loans as an option for financing the cost of medical equipment can have major drawbacks. First of all, interest has to be paid on these loans. This can substantially add to the total price of medical equipment. If the borrower has a less-than-perfect credit rating, interest rates can be quite high. Banks also typically require a down payment which can eat into or deplete a medical practice’s working capital.  

It’s true that the practice will own the equipment when the loan term ends; however, by then it’s highly likely that the equipment will be obsolete or it will have a low resale value.

 

Finance Brokers 

With so many banks, credit unions, and other funding sources to choose from, it can be difficult to know who will offer the best financing terms for your medical equipment purchase. A finance broker like Opportunity Business Loans can help you navigate the financing process by connecting you to funding sources that best meet your needs. The broker can use their extensive network of lenders to find you the best deal. You’ll also receive guidance on increasing your chances of application approval.

A finance broker will negotiate with banks and other financial institutions to find the right loan product for your requirements and will take the time to clearly explain how each product presented to you could affect your overall financial goals. The broker may also assist with filling out and submitting all pertinent documentation required for your application. Once the lender issues loan documentation, your broker will walk you through the fine print in your contracts to ensure that you completely understand your obligations to the lender.

 

 

sterile

 

Final Thoughts – Buying & Leasing Medical Equipment:  What You Should Know

 

Medical offices need to stretch every dollar, especially when it comes to major purchases like medical equipment. However, a prudent purchaser knows that it’s often necessary to spend a little more for a quality product that yields a greater return on investment. For medical equipment purchases, it’s also crucial that safety be a major concern.

For equipment buying options, the OEMs are your best resource for used or refurbished equipment because they have the resources to support you and will want to ensure your satisfaction to continue doing business with you.  It’s still essential, however, that medical offices do their homework and learn such details as the difference between refurbished and remanufactured equipment.

 For any company that you’re not familiar with, collect and evaluate documentation. Lastly, confirm that any equipment purchase will include ongoing service, OEM parts, and technical support. By doing your due diligence, you’ll ensure that your money is being spent wisely and that the equipment purchase will provide the safe and reliable service your patients are looking for. 

Leasing medical equipment also provides a viable option for many medical offices. Because a large initial cash outlay isn’t typically required, this option will give you the financial flexibility to hold onto cash reserves to handle day-to-day expenses or invest in expanding your practice. Manageable monthly payments will allow you to focus on what matters most: providing exceptional care to your patients. When it comes to technology, you don’t have to be stuck trying to sell an obsolete piece of equipment when new equipment models hit the market. You can simply upgrade equipment through your current lease.  

 

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