Leave no option unexplored

Seeking expert advice is a smart move before making a lease or purchase decision.

By Robert Stoneback, Associate Editor

There’s nothing simple about the decision to lease or buy new equipment.

While there are plenty of good deals to help clinics stay modern, many experts agree that each should still be carefully examined before a practice commits to any one plan.

“As a consultant, I always attempt to get the practice to perform a really thorough ROI [return on investment] analysis of any business deal,” says Steven Robinson, senior practice management consultant for S&R Consulting, near Chattanooga, Tenn.

Cheryl Welch, senior practice consultant of Eye Care Leaders Group in Durham, N.C., agrees. There is no “cookie-cutter, one-size-fits-all” answer. “No two practices are the same, so no two practices’ needs will be the same,” she says. If a clinic wants to upgrade, it should hire a consultant to perform an analysis of existing equipment and compare it to what it’s looking to purchase.

Many times, physicians will go to shows and “get romanced by the technology … They don’t really think about the practical use in the office,” Ms. Welch says.

Here today, obsolete tomorrow

Clinics should also keep in mind whether upcoming technology is about to render their new purchase less than optimal. Ms. Welch and Mr. Robinson advise calling manufacturers and representatives to check what new equipment is on the horizon.

“If the practice buys the state of the art technology today, and finances it, the practice may find itself owning an [older] piece of equipment that is not yet paid for,” Mr. Robinson says.

This can especially be the case with laser equipment, says Ms. Welch. “It’s like an iPhone, there’s one coming out every 30 days, it seems.”

Adds Mr. Robinson: “One might imagine that these sales reps have no end to the number of reasons as to why the ‘old’ equipment needs to be updated. Again, the decisions should be driven by an ROI calculation rather than an emotional response.”

Physicians should also be comfortable with the equipment in question and consult with their accounting firm, as there may be tax advantages specifically tied to leasing a given product instead of purchasing it, or vice versa.

Bundling agreements

Among the “multiple considerations” for obtaining new equipment, Bruce Maller, president of BSM Consulting, notes that “bundling agreements” have become popular over the last few years among manufacturers, such as AMO, Alcon and Bausch + Lomb. These bundling agreements give clinics the option to purchase disposable surgical equipment, such as intraocular lenses, at a premium; the additional dollars are then applied to a piece of equipment that is related to the procedure, such as a laser. Bundling agreements like this tend to be popular for larger capital purchases, and have become especially trendy recently due to the newer, more expensive models of lasers on the market, says Mr. Maller.

However, these agreements aren’t without their limitations, Mr. Robinson notes. An important question for a practice to ask is what is its incentive for purchasing equipment through a bundling agreement, and whether it just looks appealing because it is now a “bargain.”

The costs and terms for bundling agreements “are all over the board,” as they are tailored to a buyer’s specific needs, continues Mr. Robinson. In today’s tech-heavy clinics, equipment costs can be “unbelievably expensive.”

“Many times, the only way the buyer can afford to purchase [the equipment] is to utilize a bundling agreement,” he says.

While the discounts offered by these agreements “can be a salvation for some purchasers,” Mr. Robinson advises that they are “always designed to have the buyer tied up in a contract that gives the vendor either exclusive or near exclusive uses of the vendor’s products. In order to achieve this, the vendor makes the bundling agreement very attractive for the buyer.”

John Pinto, of J. Pinto & Associates Inc., says that bundling agreements can be attractive, but “from a net-net cost perspective, it is generally always better to buy outright, whether equipment or supplies.”

“Leasing and bundling can be seen as simply alternative financing approaches,” and their favorability depends on a clinic’s cash flow.

The limits on leases

As with most things in life, there are pros and cons to purchasing and leasing, says Mr. Maller. First, consider the two types of leases, a capital lease, aka “lease to own,” and an operating lease. A capital lease features a fixed term at the end of which the clinic can buy the equipment for a nominal sum, usually about $1. The payments over the course of the lease go towards the purchase cost, says Mr. Maller.

When an operating lease ends, the clinic can purchase the equipment at fair market value, but is not obligated to do so. An operating lease is better suited to a clinic that does not expect to retain the unit after the agreement ends.

A capital lease usually costs more than an operating lease, Mr. Maller points out.

While the length of a lease contract will change depending on the equipment involved, typically they last for three to five years. Lasers are especially a candidate for leasing, he adds.

Decisions between leasing and buying often come down to cash flow, with higher-profit practices typically buying equipment and lower-profit ones financing or leasing, according to Mr. Pinto. The resale value of equipment does not decrease any faster for a leased or purchased item, he adds.

According to Mr. Pinto, the main drivers for equipment purchase are increasing standards of care, the introduction of profitable, new services, doctors being “enthralled by new technology, despite a pressing clinical need or financial incentive to buy,” or a combination of the above.

Once the equipment is in the office, though, a clinic should devote one person to ensuring it’s properly maintained, recommends Mr. Maller. While some diagnostic equipment, like lasers, needs to be replaced more often, most of the practices with which he works use their examination room equipment for about 10 to 20 years.

If one maintains equipment, it’s more likely to have a longer useful life, he says.

And more care means the next upgrade can wait a little bit longer. OM