Weighing the Benefits of Buying Versus Leasing Medical Equipment

Life is filled with choices. Paper or plastic? Oil heat or gas?

One of the myriad of choices physicians face is whether to buy or lease medical equipment. But as Mark Hoffmann, vice president at Key Equipment Finance, points out, those who purchase medical equipment outright are in the minority.

“Only about a third [of medical equipment] is paid for directly,” he says. “Seventy percent of equipment is either leased or financed in some fashion.”

And there are many advantages to doing so.

Weighing the options

Hoffmann explains that medical equipment is very expensive, and as the cost goes up, the percentage of equipment that’s financed does as well. The key benefit to leasing is that you pay for what you use — not unlike a car.

“Why do people lease cars?” Hoffmann asks, rhetorically. “They only want their car for 36,000 miles. They don’t want to have any repairs to deal with. It’s a similar mentality with doctors and their equipment. They can’t afford to have a piece of equipment down and needing repairs.”

Speaking of cars, the argument to buying versus leasing is that once you own the vehicle you’ll always have equity to apply toward a newer model. But Hoffmann discounts that theory.

“Equity in a car?” he asks. “What car is worth more the day you drive off the lot? Nothing gains in value as you use it. There’s a reason why there’s depreciation, because it’s declining in value throughout the life of the machine. It’s the same with leasing medical equipment.”

Hoffmann says that most medical equipment leases run between three and four years, though some will go as long as five. That certainly keeps physicians current as far as the equipment and technology they’re working with. But he points out that the length of a lease is less about being on the cutting edge and more about maintenance.

“[Maintenance] is usually covered under a warranty for the first two or three years on a lot of doctors’ equipment,” Hoffmann says. “Or they can purchase an extended warranty that will cover for annual check-ups on the equipment.”

But once that window closes, extended coverage costs more, and equipment tends to break down.

“Everything has a lifespan,” Hoffmann says. “And it costs money to extend that lifespan.”

Leasing options

Hoffmann explains that one of the advantages of leasing is that the terms can be structured to match whatever the doctor’s office needs. For example, a new office might not start seeing reimbursements for 90 days. Cash flow could be pretty low for the first six months.

“We can structure leasing arrangements so that they can skip payments for the first three months, and then gradually increase over the next nine months,” Hoffmann says. “We can tailor it to the cash flow needs of the client. That gives them flexibility.”

These decisions can have a huge impact on the practice’s bottom line. Consider that if a doctor purchases equipment up front then decides three years later that he wants to get rid of it, he’ll have to hire a broker to market it for him, or put it on Craig’s List and try to sell it.

“If he paid for the whole thing up front, he paid maybe $100,000,” Hoffmann says. “If he leases it from me, he only has to make a payment every month for the first 36 months. Then he can just turn it back to us and start a new one.”

An investment

Hoffmann says another way to think about leasing versus buying medical equipment is as an investment in your practice. If a piece of equipment that’s used on a regular basis goes down, the office can’t bill for those services. It’s losing money. And it may also take a hit in the eyes of its patients.

“You, as the patient, want to go to the best doctor possible,” Hoffmann says. “If you’re seeing a piece of equipment that looks old, how do you feel about it?”

For physicians, Hoffmann adds, it’s also about maintaining an image.

“If you drive up [to the hospital] in a 1984 Fairmont, how are you going to feel as a doctor?”

And hospitals, too, need to carefully weigh the buying versus leasing decision.

“The biggest thing that hospitals need is equipment,” Hoffmann says. “Why? Because it attracts the doctors. Doctors want the newest, shiniest piece of equipment they can have.”

And haven’t you earned it?