The ins and outs of financing EHR technology for diagnostic imaging providers.

Mark E. Hoffman

This spring, the Medicare Electronic Health Record (EHR) Incentive Program issued the first round of reimbursement payments totaling $75 million to health care providers across the United States using EHR technology, and the payments are expected to continue for several years. The reimbursements are an important part of the American Recovery and Reinvestment Act of 2009 (ARRA) designed to make it easier for health care providers to adopt EHR solutions, yet many radiologists and imaging clinics are still wondering how to get there from here.

Questions surrounding meaningful use requirements for diagnostic imaging providers, growing IT demands, and decreased revenues are among top concerns for many of today’s imaging providers, and many have more questions than answers. One thing is for certain: meaningful use requirements need to be tailored for diagnostic imaging providers, and there are benefits to be had for diagnostic imaging centers that get on board with the new technology.

Equipment Finance: A Bird’s-Eye View

For many radiologists and imaging clinics, equipment financing provides access to the capital and expertise needed to make wise health care IT investments of all types. There are many benefits to financing EHR and other technology solutions that providers may not be aware of. For example:

  • Many equipment finance agreements do not require a down payment, allowing providers to acquire technology equipment without an outlay of cash.
  • Equipment finance agreements preserve existing credit lines.
  • Equipment finance agreements can be set up to accommodate the sometimes-lengthy installation process. In these cases, the technology vendor receives progress payments at predetermined milestones as the system is installed, leaving diagnostic imaging providers free to use their cash for other business needs.
  • Equipment finance agreements can help ease the impact of reimbursement cuts by keeping monthly payments small and spreading them out over the useful life of the system.
  • The entire EHR solution, including software and “soft costs” of installation, training, and existing IT enhancements, can be financed. This means a provider can finance 100% of a project’s costs for a total technology solution.
The Right Solution

Although the adoption of EHR systems is off to a slow start within the specialty field of diagnostic imaging, demand is on the rise and expected to continue to gain momentum as more and more eligible providers qualify for incentive payments from the 2009 ARRA.

Each practitioner who begins achieving meaningful use by 2012, and has fully achieved meaningful use before 2015, has an opportunity to receive $44,000 in ARRA reimbursements, with a total of more than $1.5 billion available in incentive payments for diagnostic imaging providers in the United States. Conversely, starting in 2015, Medicare payment reductions will begin for practitioners who do not demonstrate meaningful use, with hundreds of millions—and possibly billions—of dollars at risk annually.

Even with the government-stimulus carrot dangling as enticement, many practitioners who desire the technology are still left wondering how it will fit in the budget.

This is where equipment financing proves a nimble solution with a variety of benefits. To start with, an eligible provider can finance all aspects of EHR and do it quickly and with minimal documentation and red tape. In addition, the provider is able to avoid the kind of huge cash outlay associated with a traditional loan—a major benefit when managing a budget short on cash for capital improvements.

Tax treatment is another important area of consideration in equipment finance. Specific tax incentives may apply to EHR systems under the Section 179 equipment expense, which could lower the overall after tax cost of the system. It is always wise to consult your financial advisers when considering how lease financing might benefit your business.

Keeping Technology Investments Current

Acquiring EHR technology, however, is just half the battle. Once the technology is acquired, it is important to keep up with constantly evolving hardware and software to guard against equipment obsolescence. In this regard, equipment financing is flexible with competitive financing structures that can include upgrade options.

This means diagnostic imaging providers can choose a lease term (normally between 2 and 5 years for technology equipment) that fits the selected hardware and/or software solution, allows for upgrades, and allows for the acquisition of additional hardware/software under the same plan as needs change. More broadly, equipment financing enables diagnostic imaging providers to employ quality assets today and spread the cost over several fiscal years.

One Size Doesn’t Fit All

There are a variety of equipment finance solutions available so each diagnostic imaging provider can find the best fit to achieve financial goals. These include:

  • Tax-Exempt Conduit Lease—Helps nonprofit hospitals avoid the high financing costs associated with traditional tax-exempt bonds, while retaining the flexibility of a lease.
  • Conditional Sale Financing Agreements—Fast financing and flexible payment schedules for all equipment needs.
  • Loans—Traditional financing that allows complete control at competitive rates.
Maximize Tax Benefits

Since diagnostic imaging providers require a mix of equipment and technology solutions, it is important to know how those acquisitions will affect the provider’s income taxes. The mid-quarter convention is one tax rule with a big impact on those acquiring a lot of depreciable equipment at the end of the year.

If a for-profit provider acquires more than 40% of its assets during the fourth quarter, it is subject to the tax rule known as the “mid-quarter convention,” which reduces the amount of depreciation the provider can claim on its tax return for all the equipment it acquired during that calendar year.

Most providers plan to avoid the mid-quarter convention by closely managing the amount of assets placed in service during the fourth quarter. However, since certain types of equipment finance agreements (eg, tax leases) are not included in the 40% calculation, health care providers anticipating high levels of fourth-quarter equipment acquisition should talk with their tax advisor about financing these acquisitions with a tax lease. Finally, be sure to consult your financial advisers when considering how financing might benefit your business.

Finding Expert Guidance

Perhaps the most important step here is seeking the guidance of an experienced and reliable equipment finance partner. When making this choice, consider whether the finance company:

  • Understands your practice’s needs
  • Is quick in its credit application approval process
  • Is stable and able to offer expert guidance through economic ups and downs
  • Is familiar with the nuances of EHR technology for the imaging industry

As with any technology investment, the value comes from using the technology, not from owning it. In this regard, equipment financing not only reduces the many problems associated with the adoption of new technology but also optimizes the technology procurement process for the best investment results.

With flexible equipment finance options to help ease the burden on the budget, the EHR picture just may become a little clearer for diagnostic imaging providers.

Mark E. Hoffman is Senior Vice President of Key Equipment Finance’s Healthcare Division. Key Equipment Finance is one of the largest bank-held equipment finance companies in the United States. He can be reached at (248) 840-2031 or For more information, visit www.KEFonline.com.