Healthcare organizations have the responsibility of acquiring medical equipment that will be used day in and day out. A big part of the selection and budgeting process relies on the decision to outright purchase medical equipment or to lease it. While both options have advantages and disadvantages, the final decision will depend heavily on financial and operational situations. Since there is no initial payment, medical equipment leasing is a good option for organizations with limited capital, or those who make frequent upgrades. Purchasing, on the other hand, will be better for established organizations that can afford to buy equipment outright, or those who need equipment with a long usable life.
To make better and more informed decisions, today we will go over some advantages and disadvantages of buying versus leasing medical equipment.
Buying Medical Equipment – Advantages and Disadvantages
Buying medical equipment comes with the benefit of ownership and some tax breaks, but also the drawback of paying a high initial cost. This makes an outright purchase preferable for those with sufficient capital funds, and nearly impossible for those without. Let us first take a look at the major advantages and disadvantages of buying medical equipment.
The Advantages of Buying Medical Equipment
The most apparent advantage of buying equipment is that you own it. If you are considering purchasing equipment like a C-arm or an x-ray machine without a long useful life, the advantage of ownership becomes even clearer. Since it is your equipment, you also have the option of upgrading it whenever you want, or sell it whenever the need arises.
Ownership also comes with added tax incentives. For example, section 179 of the Internal Revenue Code allows you to deduct the full cost of certain assets in the first year.
The Disadvantages of Buying Medical Equipment
Purchasing medical equipment means that you will have to make a higher initial expenditure, which lowers your buying power for other purchases. While this may not be an issue for certain organizations, others will have to make the decision of purchasing one machine over another. Money can be borrowed to overcome this obstacle, but may lead to creditors placing restrictions on your future financial operations. Some organizations can choose to bypass this by purchasing used medical equipment that has been refurbished to its OEM standards for performance.
Though ownership comes with a lot of advantages, it also comes with a very big disadvantage: being stuck with older, outdated equipment. Resale is always an option, but the fact that a newer, better model is available means that you will not get nearly as much money back as you paid for it. Keep in mind that this concern is far more pressing for technology-based equipment that may become obsolete as soon as a newer model is available.
Leasing Medical Equipment – Advantages and Disadvantages
Leasing medical equipment means that you do not gain ownership of it, but it does allow you to preserve capital and increase your flexibility for other expenditures down the line. This makes leasing the go-to choice for those who lack the funds to make an outright purchase, but have enough monthly operating revenue to cover the cost of the lease payments. Let us take a look at the advantages and disadvantages of leasing medical equipment.
The Advantages of Leasing Medical Equipment
The most well-known advantage of medical equipment leasing is that you can acquire what you need without paying for it in full. Some suppliers will also offer a variety of leasing options that do not require a down payment, making leasing a cost-effective solution that gives organizations more buying power without significantly influencing cash flow.
Signing a lease requires agreeing to certain lease terms. Apart from being able to incorporate lease payments into the operating budget, you have many options at the end of the term for maximum flexibility. Some lease arrangements also assign maintenance and repair costs to the lessor, as well as any software upgrades or support. Similarly, leasing prevents equipment obsolescence by giving you the option of leasing the latest equipment, or upgrading to it after your initial lease term has ended.
Like purchasing, leasing medical equipment comes with tax incentives that make it an attractive option. For example, while an operating lease can be omitted from balance sheets, a capital lease allows you to claim depreciation tax credit on the equipment and the interest expense of the lease. A capital lease model will also give you the option of purchasing the equipment at the end of the lease term for fair market value.
The Disadvantages of Leasing Medical Equipment
One disadvantage of leasing medical equipment is that you have an obligation to pay for the equipment throughout the entire lease term, even if for some operational reason you stop using the equipment before the term is finished. Fortunately, some lessors will give you the option of prematurely stopping a lease or making changes to it, but you will likely incur early termination or related fees.
Should I Purchase or Lease Medical Equipment?
Purchasing medical equipment is a better option for some, while leasing will be better for others. The advantage of an outright purchase is that you gain ownership of the equipment and have control over that asset. This is especially advantageous if the equipment has a long usable life and a low risk of obsolescence. If it does not, you risk obsolescence, paired with a capital expenditure and an initial negative return. Lastly, if you are introducing a new program or service, it can take months to build up a full schedule of cases. Devote enough time to advertising a new service line well before you install your equipment.
The decision to lease comes with tax incentives that can help your bottom line. When compared to a traditional purchase where the asset’s total return plateaus after maintenance costs and depreciation are considered, a lease will protect you from this by providing free capital and positive returns from the beginning.