How to pay for your EHR

Even by conservative estimates, an electronic health record system is a major expense. Including hardware, software, implementation, and training, an EHR can easily cost $30,000 per physician. But there are some ways to finance it that can ease the pain. Here are some pros and cons of each approach.

Loan or line of credit. If you have a good relationship with a local lender and enough money for a down payment, consider applying for a bank loan.

"Our 10-doctor group considered all of our options and decided to put down 20 percent in cash with the vendor and borrow the balance-around $200,000," says Katrina M. Hood, a pediatrician in Lexington, KY. The loan is for three years at 5.5 percent. (Most loans for expensive technology and equipment have terms of three to five years.)

"I found a line of credit much more attractive than either a loan or a lease," says Timothy E. Phelan, an ob/gyn in Folsom, CA. "It was more convenient, and I feel like I have more control. Plus it was a lot harder for me to grasp all of the costs involved with a lease."

Nevertheless, a line of credit can be tricky if you use most or all of it to finance a large purchase such as an EHR. If you need more money-to cover an unexpected shortfall in cash flow, for instance-you may not be able to increase the line of credit.

Another thing to beware of with either a loan or a line of credit: taking too long to pay it off. If you don't retire the debt within five years, you run the risk that your EHR will be obsolete and will need to be replaced before you're finished paying for it.

You can deduct interest on bank loans and lease payments on your corporate tax return. If you're not incorporated, deduct it on Schedule C.

Lease. This is perhaps the most widely used financing mechanism for purchasing healthcare technology, according to Physician Micro Systems, an EHR vendor in Seattle. You don't need a down payment, and approvals often come in 24 hours or less. You may also be able to structure your payments monthly, quarterly, or yearly.

Under a "finance lease," you make payments for the term of the lease-which typically ranges from 12 to 60 months-and at the end of it you own the product. Yes, that sounds like a loan, and in many ways it is. But you won't save any money by paying off the lease early, as you would with a bank loan. In addition, the effective interest rate of the lease may be higher than that of a bank loan or line of credit.

Under another arrangement known as a "true lease," you don't own the EHR when the lease terminates. However, you're usually given the option to purchase it at its fair market value (if it has any by then).

Which type of lease is better? It depends on your financial situation. Payments on a true lease are typically lower than those for a finance lease, because you're not renting to own. If you aren't purchasing your entire system-including computers-from a single vendor, you might consider leasing the hardware and the software separately to get the best deal on each. Ask your leasing agent for advice-and get your accountant's, too.

For more tips on leasing, including some strong words of caution about particular types of arrangements, see "Technology Consult: Why not lease your computers?" in our June 4, 2004 issue (available at http://www.memag.com/memag/article/articleDetail.jsp?id=108604).