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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.
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.
Let’s take cost out of the equation for a minute and look at the advantages of buying new medical equipment instead of used.
Aside from cost, the above factors lead some healthcare professionals to opt for new medical equipment over used.
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.
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:
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.
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:
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:
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.
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.
The following list isn’t exhaustive but is meant to represent the types of medical equipment that are commonly leased by healthcare facilities.
If you’re considering the lease route, here are common medical equipment lease types:
Let’s consider the costs associated with leasing medical equipment:
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.
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.
Here are more benefits of leasing medical equipment over purchasing it:
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.
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 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.
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.
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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