Seven Tips for Financing Medical Equipment

Whether you’re starting your first medical practice or you’ve had an established practice for years, medical equipment costs can take a big bite out of your budget. Financing medical equipment can help give physicians needed breathing space, but they need to be aware of the advantages leasing provides compared to a bank loan or other arrangement.

Also, physicians need to be aware of the tax benefits that Section 44 of the tax code provides for financing equipment that provides better access for the disabled, such as adjustable power tables.

According to Medical Economics, doctors starting a small primary care practice are likely to spend between $50,000 and $65,000 for furniture, medical equipment, and office equipment. Examination tables, otoscopes, colposcopes, imaging equipment, and more add up, and the cost has imposed a real financial burden on many physicians.

Replacing disposable medical supplies and updating obsolete or worn out medical equipment is an ongoing expense for medical practices, costing doctors thousands each year. Medical Economics found that primary care physicians spend about half of their practice revenue on operating expenses, while specialists fared little better, spending 43 to 50 percent of earnings on overhead costs.

Skimping on medical equipment to save money is a poor choice, however. Malfunctioning or outdated equipment may contribute to mistakes that can harm patients and cost doctors in terms of malpractice suits. Older equipment and facilities can also be a big turn-off to patients.

Financing can help doctors get the medical equipment they need without forking over a huge chunk of their working capital. Financing arrangements allow physicians to make monthly payments on equipment, providing needed relief to their bank accounts.

Traditional bank loans to finance the cost of medical equipment has some big drawbacks, however. For starters, loans carry interest, which can substantially add to the total price of medical equipment. Depending on the borrower’s credit history, interest rates can be quite high. Banks also typically require a down payment for a loan, which can eat into doctors’ start-up or working capital.

Also, while it is true that the medical practice will own the equipment it financed when the term of the loan is over, by then chances are that the equipment will be outdated or its resale value will be low.

A Better Option

Financing medical equipment through leasing agreements with medical supply companies may provide a better option for practices seeking the latest, best quality equipment for their practices. Medical equipment suppliers have a big motivation to make lease agreements as favorable as possible for hospitals and practices, as good, mutually advantageous leases can secure loyal clients for decades. Medical practice administrators, as well as hospital and clinic heads, should consider these benefits of leasing medical equipment:

  • Tax deductions – The Internal Revenue Service treats leases as tax-deductible overhead expenses and allows medical practices to deduct their lease payments from income. Depending on your practice’s individual circumstances, this may be more advantageous than purchasing equipment and deducting depreciation. Physicians and health care facilities managers considering leasing equipment should talk to an accountant to determine whether leasing or a loan best fits their needs
  • Tax credits – If you’re leasing medical equipment that can provide disabled patients better access to services, such as power tables, you may be eligible for a Section 44 tax credit. The tax credit can cover up to 50 percent of the cost of equipment up to $5,000 that provides reasonable accommodation for disabled persons. Power tables typically fall within Section 44 eligibility, so it’s well worth your while to have your tax professional fill out IRS Form 8826 to claim the credit.
  • Finance 100 percent of the lease – Very few banks will allow medical practices to finance 100 percent of an equipment purchase. Most will require a down payment, and the majority of these will require a substantial down payment. That can be a stretch for start-up practices or cash-strapped practices. Under a lease agreement, practices are able to finance 100 percent of the cost of the lease.
  • Better cash forecasting – When healthcare providers lease medical equipment, it allows them to more accurately forecast cash requirements, as they know exactly what their equipment costs will be and because leases do not carry any floating fees.
  • End of term options – At the end of a lease agreement, clinics and hospitals have several options. They can choose to purchase the equipment at a reduced price from the medical supply company. They can return the equipment to the medical supply company and lease new equipment. They can also extend the term of the lease, renting the equipment for a few more years. Lease agreements’ end of term options provides practices with the flexibility they need to scale up or down or retool as circumstances dictate.
  • New technology – When clinics or hospitals buy medical equipment, their purchase typically commits them to that equipment for many years. By leasing equipment for a few years at a time, medical facilities gain the option of upgrading equipment every few years, allowing them easy access to the latest, most advanced medical equipment. Medical technology is rapidly advancing, and the option to upgrade every few years gives health care providers an important advantage to offer their patients.

  • Patients are definitely checking out their doctors’ equipment. According to a Modern Healthcare survey, about 40 percent of patients polled said health care providers exceeded their expectations by having up-to-date equipment. The same survey found that 41 percent of patients said modern amenities such as comfortable furniture and refreshments increased their satisfaction.

  • Lower payments – Lease agreements are typically less costly than monthly payments on a loan. These lower costs give medical practices more financial flexibility to meet other needs.
  • Easier financing – The leasing process has far less red tape than obtaining a loan to purchase medical equipment. Most leasing agreements won’t require client list reviews, cash-flow projections, orother types of intrusive information gathering.
  • Quick scaling – Practices can quickly scale up and get more equipment, should their needs require it, as obtaining lease agreements is faster, easier, and less expensive than getting a loan for an equipment purchase.

Leasing Considerations

When leasing medical equipment, doctors and healthcare facility managers should take the following into consideration:
  • How long will this equipment last – Physicians need to know how long they intend to use the equipment being leased. For example, if you plan to upgrade equipment every five years, the lease needs to be structured in a way that gives them an easy opportunity to switch out currently used gear for newer equipment. Practices that think they may want to buy equipment at the end of a lease should negotiate to make thepurchase at the end of a lease as inexpensive and easy as possible.
  • Warranty – What happens if the equipment breaks or becomes inoperable? Should the company leasing the equipment be responsible for repairing or replacing the equipment? Is there a manufacturer’s warranty? Medical facilities should strive to ensure their leased devices are under a warranty.
  • Support – When leasing medical equipment, you should make sure that the company leasing the equipment provides support services, particularly for computerized or highly technical equipment. Otherwise, your practice could end up spending lots of money on repair or maintenance work.

Consult with a Tax Professional

Before making any major financial decision regarding leasing or financing for your practice, it pays to consult with a tax professional. Tax professionals can ensure whether your purchase is eligible for a Section 44 Disabled Access Credit and offer other advice concerning how equipment purchases can reduce your tax liability.

Finding a Reliable Partner

Healthcare providers are under increasing pressure to satisfy patients, particularly if they serve a younger demographic. According to Modern Healthcare, Millennials are 156 percent more likely than older generations of patients to change providers if they are satisfied. Stocking your practice with modern, quality medical equipment is one way you can gain the respect and loyalty of patients.

Doctors and hospital administrators need a reliable partner to provide medical equipment and financing. Medical professionals should seek an experienced provider of medical equipment that offers a clear and unambiguous description of its leasing agreements.

Medical Device Depot is an online seller of medical supplies and equipment. Whether you’re looking for otoscopes, colposcopes, or the latest high-tech medical equipment, Medical Device Depot can provide top quality gear from trusted manufacturers. Medical Device Depot sets a high standard for customer service and ensures that calls are answered by trained representatives that understand physicians’ needs and the capabilities of equipment sold by the company.

Medical Device Depot’s equipment leasing agreements are a win-win for the company and the medical professionals it serves, providing the company with new, loyal customers and doctors with the latest medical equipment at affordable prices.