HealthJanuary 28, 2020

Leasing medical equipment: A viable option for private practice

By: Whitney J. Palmer

When it comes to leasing medical equipment, most medical environments face the same conundrums. For private practices, much like larger hospitals, the cost and long-term utility of expensive technologies can weigh heavily in the decision of how to bring such equipment in-house.

According to MD Magazine, practices lease approximately 70% of their medical equipment. And as competition increases between providers, equipment improves and budgets stretch thinner, the need for leasing equipment will only rise. Becker's Hospital Review reports that the market for health care equipment leasing is set to grow at a compound rate of 6.77% annually through 2021.

But before you elect to lease equipment, carefully consider the advantages and drawbacks. It's also important to know how to maximize your lease agreement.

Pros and cons of leasing medical equipment

Opting not to buy large equipment, such as an X-ray or MRI machine, can provide several benefits to a group. But leasing equipment isn't without its drawbacks. Use this list to help you decide whether it makes more sense to lease or buy.

Pros

No initial capital expenditure

Paying for expensive equipment in full can significantly impact your practice's bottom line. For example, according to an article in the Journal of Urgent Care Medicine, the upfront costs of an X-ray and the room setup can hover between $75,000 and $95,000. Leasing eliminates the need to drain your business funds.

Reliable costs

Leasing medical equipment allows you to plan for a set monthly payment, freeing you to apply additional funds to other priorities, such as hiring additional staff, purchasing land for building expansions or upgrading your infrastructure.

Affordable maintenance

Most lease agreements include two- to three-year warranties. So if your machine breaks — or even if it requires routine maintenance — the cost of completing the repair falls to the vendor rather than coming out of your budget.

Lease-to-own options

Depending on your vendor and the contract, which typically lasts between three and five years, you could structure your lease payments to be applied to a final purchase at the end of your lease agreement, giving you ownership of the equipment. Other flexible contract options allow you to extend your lease or renew it with different parameters, including the option to upgrade to newer equipment.

Cons

Greater cost over time

Although leasing medical equipment decreases and controls your monthly or yearly payments, you will end up paying more than the equipment is worth over time due to interest rates. Depending on your credit score, according to the Journal of Urgent Care Medicine, you can anticipate paying between 3% and 15% interest over the term of the lease.

Payment obligations

You can't always anticipate how much you will use a piece of equipment over time. If your practice model or patient base changes, you might not use your leased machine as much or at all. But, per your lease agreement, you are still obligated to pay. Canceling your lease could save some money, but you will likely be charged a fee for breaking your agreement.

3 Tips for leasing medical equipment

If you've decided to lease your medical equipment instead of purchasing it outright, there are a few ways you can maximize your decision.

1. Choose the right vendor

Find a vendor as close to your practice as is feasible in order to reduce or avoid shipping fees, and ensure the vendor serves your particular geographic area. In addition, search online for customer reviews, and contact previous buyers as references. Be sure to ask about any negative experiences. And before you sign a contract with any vendor, check that they allow you to upgrade your equipment as the technology advances.

2. Know when it's time to upgrade or exchange

Radiology Business recommends conducting a life cycle cost analysis, mapping out any associated equipment expenses from the beginning to the end of your lease. Factor in daily use and expected product reliability to determine how long you can reasonably expect your equipment to last. The average equipment life cycle is approximately seven years.

3. Negotiate your warranty

The more contingencies you include — and the more complex they are — the more expensive your service agreement will be. However, it could potentially save you a greater out-of-pocket cost should anything go wrong. In addition, know the service window and establish an acceptable wait time for maintenance. Knowing these details is critical because nonfunctioning equipment can cost you money.

Ultimately, leasing medical equipment can be a viable option for any type of practice or facility. The cost savings, flexibility and upgrade opportunities can make it an attractive business practice, allowing you to offer the most up-to-date technologies available in patient care.

Whitney J. Palmer