How to Buy Technology for Your Medical Practice

Out-of-pocket is an option, but it makes better business sense to lease equipment.
Out-of-pocket is an option, but it makes better business sense to lease equipment.

Whether purchasing technology to meet meaningful use requirements or to keep up with the latest surgical advancements, most physicians today are no strangers to business financing. But even if physicians have worked with a lender numerous times, experts can still help them make the most of your practice's dollars.

“It's like buying a home,” said Richard Gundling, vice president of the Healthcare Financial Management Association. “You either save up to buy a house or take out a mortgage. You have to figure out how much you can afford, get a smaller house or get a roommate."

A handful of options

If a practice needs to make a large equipment purchase, there are really only a few options. One is to work with a hospital that will provide the technology, which does not mean physicians would have to sell their practice.

“They can talk to hospitals that they practice in and they might have different programs,” Gundling said. “There might be different ways of affiliating that might make sense.”

Leasing equipment is another alternative, and can be done through a bank or manufacturer. A banker or a practice manager can help decide whether buying or leasing is a good option for the particular equipment you need.

The final way to get new technology into a practice is to purchase it. This can be done by paying upfront or working with a lender. There are myriad aspects to consider when buying.

Out-of-pocket

Paying for new technology out-of-pocket is one option. Though it may seem like a good idea to forego having debt, experts say it often is not good business sense.

Gray Tuttle, a principal with Rehmann's Healthcare Management Advisors, said an organization has to consider the true cost of using internal profits to fund a purchase. For instance, income tax on profits is usually around 30% if state and corporate taxes are included. A practice would have to generate a total of $167,000 to fund a purchase of $100,000.

“That is expensive if you look at the cost of borrowing $100,000 from a bank,” he said.

A group also has to consider potential return on money. If you put $1 into a practice and your return is 6%, and the interest rate on a loan is 3%, doctor get a better return putting it into the business, said W. Ben Utley, a consultant, with Physician Family Financial Advisors in Eugene, Ore.

Building relationships

If an office in used to working with cash and does not have a professional relationship with a bank, it is best to make connections before the money is needed.

“The best time to ask to borrow money is when you clearly don't need it,” Tuttle said. “The worst time is when you are desperate for it.”

Tuttle recommends that physicians work with a bank and establish a relationship and lines of credit even if they are not considering making a purchase. When, at some point, physicians need the money, the path will already be paved for borrowing.

Look to the members of the board of your affiliated hospital to find banking connections. Many of these boards have bankers sitting on them and they will understand the needs of a healthcare practice, Gundling said.

Utley said the most effective programs can often be found at community banks.“They are the people you know, the patients you work on right there in your backyard – those are typically the people most interested in giving you a loan,” he said.

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