THE THRIVING PRACTICE

End-of-Year Purchases

A look at the metrics that drive practices’ buying decisions.

By Erin Murphy, Contributing Editor

Are you weighing whether or not to make a capital equipment purchase by the end of the year? When we asked three professionals to tell us what they considered before making this big decision, they offered these three key factors.

1. Timing: Next Year’s Budget

Brett Chambers, CEO & Senior Consultant at KoreNetics in Dallas: “The majority of the time, clinics make purchasing decisions at the end of the year based on the development of next year’s budget. They’re looking at what has given them the most bang for their buck and what their incremental cash flow looks like. They buy strategically to save time and increase revenues in the coming year.

“Doctors and administrators are looking at equipment and talking to other practices throughout the year. If they decide to purchase something, it’s based on solid trends in the industry.”

Amber Grubb, CFO at Key-Whitman Eye Center in Dallas: “It’s common for practices to consider major purchases at the end of the year. Decisions are usually based on cash flow or the practice’s tax situation.

“If money is left over at the end of the year, then many practices decide to hold on to the money, particularly if they want to take a wait-and-see approach with their financial future. Those who do make purchases are planning ways to enhance patient care, replace obsolete equipment or provide new services.

“For example, we recently replaced a visual field device because it was obsolete. The parts were no longer available. If the machine were to go down, we wouldn’t be able to fix it, and we’d lose a week or two of efficiency and quality care for our patients without the equipment. The new device is reliable, and it’s so much more efficient that we’ve actually accelerated patient throughput.”

Susan Thomas, Key Whitman Eye Center’s Director of Operations: “As we plan for next year, we like to think ahead to what’s going on in the field and where we want to go. For example, we look at what’s worked for us in the past, what kind of return we received on recent investments, and we think about how we could apply those successes to other practice locations.”

2. Deals: Tax Deferrals

Amber Grubb: “Salespeople promote huge tax savings for capital purchases based on Section 179 of the tax code, a deduction that has been high for years in an effort to stimulate the economy.

“This doesn’t create a ‘savings,’ but it does create a timing issue as to when the tax reduction occurs. Section 179 allows a company to take the tax reduction in the year the asset was placed in service instead of spreading the tax liability over the tax life of the asset. An example of this would be the purchase of $500,000 in assets in 2013. If Section 179 is used, there is an immediate tax reduction of $175,000 (utilizing a 35% tax rate) as the full $500,000 is deducted from taxable net income. (Note: This deduction can’t cause taxable income to fall below $0.) This helps cash flow in 2013. However, when an asset is financed, a practice must consider the cash flow issue that will be created by making principal payments on debt with no corresponding tax depreciation against net income in future years. It was all used in the year of purchase. Many physicians are surprised the following year when they receive their 2014 K-1 and their taxable net income is quite a bit higher than their distributions.”

3. Revenues: Anticipated ROI

Brett Chambers: “With declining reimbursements, reduced volumes and increased focused on quality, it’s essential to manage costs, and medical technology is one of the highest costs in health care.

“As a consultant, I work to give practitioners the best possible data on which to base those decisions. I create detailed predictive modeling with unique software that paints a thorough, objective picture of processes inside a practice, helping identify opportunities to optimize throughput or technology integration. That optimization and integration is sometimes best achieved with an equipment purchase.

“Before a practice commits any funds, we can use the data to identify the optimal quantity of devices based on the organization’s operations. For example, one practice is considering the purchase of five Marco EPIC workstations. We can tell them what the new schedule should look like, how it would affect patient flow and when they would see an anticipated return on their investment.”

Amber Grubb: “Potential ROI is a huge factor in a practice’s purchasing decisions. Devices have the potential to increase both profits and productivity. But ROI is hard to predict. We have one expensive piece of equipment that we thought would have an 18-month ROI, but now we know we may not see it for 3 years.

“In contrast, our Marco EPIC systems actually pulled devices from multiple rooms into a single room and a single sitting. It’s fast, accurate and efficient, and it documents a patient’s complaint of glare, which increases the number of patients who can be reimbursed for surgery.”

Susan Thomas: “The EPIC system is something that’s part of our discussion of ROI today. We’re about to start construction in our primary location, and we’re modeling how to use the rooms to get the best ROI. If we add another piece of equipment, how will that affect staffing, throughput and our bottom line every day? The EPIC allows us to have more lanes in less space, it’s more efficient, and workups are accurate and consistent, interfaced easily with the EMR system. The EPIC lets us see two to four more patients per hour. We anticipate adding another unit.”