To Lease or Buy Medical Equipment: What’s Best for Your Practice?

To Lease or Buy Medical Equipment: What’s Best for Your Practice?

Whether to lease or buy equipment for your urgent care center is a tricky question, and there is no “one size fits all” answer. There are several factors for you to think about when it comes to making an educated lease vs. buy decision.

Your Business

Most of the time it’s going to make more financial sense to lease equipment if your business is smaller and has fewer employees, such as the typical de novo or start-up urgent care. The upfront cost of an x-ray room set-up, for instance, is going to be anywhere from $75,000 to $95,000. That can be a cripplingly large investment to a small practice, especially if you’re just starting out. However, depending on your credit and the terms of the lease, the payments on high quality equipment can be around $1,000 per month on a 5-year lease. Plus, the lease payments can be applied towards the overall cost of the machine, allowing you to buy it outright if you want at the end of the lease. Or, you can just replace it with a new one once the lease runs out. But a good rule of thumb is that if you’re smaller, a lease with tax-deductible monthly payments is a smaller financial hit than a full cash outlay, even if you can deduct the depreciation.

Your Credit

Credit always has an effect on how much you’re going to pay for the equipment you lease. Let’s say you have a good credit score in the range of 720. Your interest rate would be around 0-3%, to make the math easy. On a $35,000 piece of equipment, you’ll pay a monthly payment of $600.83 for 5 years. If you bought it at the end of the lease, you would have paid $36,050 for the $35,000 machine. However, if your credit is around 620, you might get a 7-15% rate. Let’s say you got a 12% rate. On the SAME lease terms, you’d pay $653.33 a month, and if you bought it you’d pay $39,200 for the $35,000 machine. These examples are ignoring taxes just to make the math easier.

The Taxes

Under IRS code 179, leasing expenses for business are 100% tax deductible. So, rather than having to depreciate an item over time, a business has the option of deducting the entire price from gross income, thus reducing tax liability. Now, the value of any deduction assumes income to offset…Section 179 elections may be more valuable for existing versus start-up businesses in which revenue is ramping up. However, there are exceptions, and you should ALWAYS find out if the equipment you’re considering will qualify for that deduction. The deduction will also apply if you bought the machine outright, but once again you need to make sure your device qualifies. If your device does not qualify, you may be able to deduct annual depreciation, which gives you a tax break based on how much the equipment “loses value” each year.

The Technology

One of the most important considerations when it comes to buying vs. leasing is how fast the technology will be outdated. Do your research on how quickly the tech will become obsolete, because you don’t want to spend $35,000 to buy equipment outright only for it to be replaced by something far better. Leasing gives you the flexibility to replace your old equipment with up-to-date technology on a year-to-year basis.

Cost of Maintenance

Most of the time, your equipment will have to be maintained through the company you’re leasing it from, and modifications are usually completely forbidden. Leasing gives you less freedom to do what you like with your equipment. Sometimes, that’s totally fine! Often you don’t need to make a whole lot of modifications to your basic x-ray machine. However, if you’re going to customize your equipment at all, you’re probably going to need to buy it. And if you buy it, you can get whoever you want to maintain it. Leased equipment can be subject to long wait times for repairs.

Conclusion

The choice to lease or buy equipment is going to depend ultimately on what you can afford and how fast the technology will go out of date. If you can easily afford to buy the equipment outright, do it! If buying would be a financial hit but you have good credit, it may be smarter to lease. And if the technology has changed every year for the past few years… You probably need to lease. Take your practice’s finances into account, and don’t spend a lot on something that will go out of date in less than 2-3 years. With that information in hand, you can make the most educated choice about leasing or buying!

Alan A. Ayers, MBA, Macc is Vice President of Strategic Initiatives for Practice Velocity, LLC and is Practice Management Editor of The Journal of Urgent Care Medicine.

From Startup to Success – Apex Urgent Care

From Startup to Success – Apex Urgent Care

Listen to testimonial from the owners of Apex Urgent Care in Katy, Texas. Another successful practice under the tutelage of Urgent Care Consultants!

 
Video Transcript

Urgent care, when you compare it to the different specialties and offered a wide variety of patient cases, so it promised a future of never having a boring day. It really just appealed to me – being in the clinic, the fast pace, lots of different patients, as well as being able to fix their problems in the short term – getting that feeling that you’re really helping people feel better.

Well, I like it. It’s a lot of autonomy. You can decide to do what you want to do on your own. There’s flexibility in your schedule. In the springtime, doing what you like doing; spending time with family also too. There are challenges being on your own also too, but it’s exciting. I like the challenge.

Well, starting the clinic from the ground up you definitely need some help. We were looking for a company that had experience in helping people like us start from the ground up. So, we were looking for the best consultants that we could find.

I wasn’t sure what I was going to do. I knew I had ways to start an urgent care, but I had no idea where to start from; literally I had no idea.

But they help us assess neighborhoods and assess building sites so that we know that we’re going to pick a location that has enough people living around it so that we can have a good start.

Staffing models, getting the policy procedural manuals – I mean,they’ve been very, very helpful. They were very supportive, even to the point where you can apply EMR. They were not pushy. They gave me all the options available. So, they’re very patient, easy to get to, very approachable. I must say I really don’t think we’ll be hearing enough from them. That’s the honest truth.

Being just a provider and taking care of patients, there really isn’t a lot of education in medical school or a lot of training during residency about how to negotiate and how to discuss the contracting aspect with the insurance companies. So, there were a lot of surprises and a lot of things we just weren’t educated on that we really relied heavily on Bonnie’s expertise.

I learned a lot more because being on my own, practicing medicine, you don’t meddle in those things. You just do your medicine and move on. But I’ve learned to become a better manager with the urgent care team helping me out.

They really made things simple in the sense that when we have questions about how things are supposed to go, they have the experience to give us proper answers.

Initially starting up an urgent care clinic – it’s growing pains. You have to market to get into the right location. It takes a while to grow. It takes a while for people to know you’re in the community. But we’ve been here for about a year and a half now and numbers have picked up considerably.

They’ve really walked us through the steps from the beginning to where we are now, here over a year later. We’ve grown from seeing five patients a day to some days seeing almost thirty.

I can tell you this for certain – urgent care – I came into this business with no idea, no experience at all whatsoever, but getting in contact with Ms. Bonnie and the company has really been able to help me through the whole process.

Biggest advice for somebody who’s about to embark on this journey of opening your own urgent care would be to do a lot of preparation ahead of time and that means researching the business in general, but also researching your support team because it’s not a task that you can do on your own. You are really going to have a better shot at succeeding if you’ve got a correct team like Urgent Care Consultants.