Make sure you?re aware of the unique advantages of financing imaging equipment in the fourth quarter.

With ongoing economic pressures, many radiology professionals remain in a holding pattern when it comes to making important new investments in equipment upgrades, whether diagnostic imaging technology or PACS.

Good timing, however, can transform a necessary purchase into a smart investment, and in the case of equipment financing, that smart timing is now—in the fourth quarter of the year.

During the fourth quarter, equipment finance companies can take advantage of specific Internal Revenue Service rules that enable them to pass along savings to radiology and medical imaging clients in the form of lower rates when those clients choose to lease equipment. Therefore, the fourth quarter may be a particularly advantageous time for acquiring all types of equipment, including PACS systems, radiology information systems (RIS), or diagnostic imaging technology such as CT, MR, and PET equipment.

General Benefits of Equipment Financing

Due to the poor economy and uncertainty regarding the massive health care reform initiatives, health care providers have put off the acquisition of new equipment. As a result, equipment is aging and will have to be replaced in the near future. Additionally, there is more and more scrutiny of radiation levels, further driving practitioners to consider newer technology.

Amid these and other budgetary pressures, equipment financing is a popular way to obtain the equipment necessary to deliver the best possible patient care, yet remain competitive by conserving cash and maximizing flexibility. It is also important to note that just about any type of equipment—including accompanying software and the “soft costs” such as installation, training, and existing IT enhancements—can be included in most equipment leases. This means you can finance 100% of a project’s costs for a total solution.

Equipment financing also allows you to:

  • Hang on to cash. Many equipment finance agreements do not require a down payment, meaning you can acquire the equipment without a large cash outlay.
  • Preserve existing credit lines.
  • Accommodate sometimes-lengthy installations, especially in the case of large imaging equipment upgrades or PACS systems, by making progress payments to vendors at predetermined installation milestones.
  • Ease the impact of Medicare and Medicaid reimbursement cuts by keeping monthly payments low and spreading them out over the equipment’s useful life.

In addition, equipment financing allows hospitals to address capital budget constraints by making lease payments from their operating budgets.

Equipment Financing Options

Equipment financing options range from loans to capital leases and operating leases. Loans and capital leases, also known as “finance leases,” are the most flexible when it comes to term length and customizing payments. These structures can be used to finance almost any type of asset, including diagnostic equipment, IT, and software.

Capital leases also provide flexibility at the end of the lease. Depending on the structure used, a capital lease may offer one or more options such as renewing the lease, purchasing the equipment at the current fair market value (FMV), purchasing the equipment at a predetermined fixed price, or a $1 purchase option.

An operating lease acts more like a rental for the equipment. It also is called an “off balance sheet lease.” With this type of lease, the asset and long-term debt do not appear on the balance sheet. Payments are treated as an operating expense. When the term expires, you typically have the option to return the equipment, renew the lease, or purchase the equipment at FMV.

Loans, capital leases, and operating leases all provide a variety of tax benefits, but those benefits differ by tax ownership. Loans and many capital leases are considered nontax leases, which allow customers to write off depreciation and interest expense for the acquired equipment. Some capital leases and most operating leases are tax leases. In this case, the equipment finance company takes the depreciation.

Cash Flow Flexibility

Financing capital equipment is also helpful when it comes to cash flow management. It makes a lot more sense to pay for equipment over time as it is used to generate revenue, since the real benefit of equipment is using it, not owning it. This is especially true given the typical 90, 120, or even 150-day lag time between procedures and reimbursements from Medicare or third-party insurance companies. With equipment financing, you can still upgrade your MR or CT, or acquire a new PACS system, and tailor your monthly payments to match reimbursements.

Equipment financing also guards against equipment obsolescence and helps you remain competitive. For example, you may be considering upgrading from a 5- or 10-year-old MRI machine to one with more patient safeguards and faster throughput. By investing in technology that speeds procedure time, an imaging center or radiology clinic can see more patients during an 8- to 10-hour day. In fact, the ability to see even one or two additional patients daily means you are better able to cover your overhead and generate positive cash flow.

In this regard, equipment financing is a helpful tool to help you acquire the equipment you need now, while transferring the risks and uncertainties of ownership to the finance company. This enables you to concentrate on using the equipment as a productive part of your radiology business.

Special Fourth-Quarter Benefits

There are additional benefits to entering into equipment financing agreements at the end of the year, such as providing a smart way to use any “use it or lose it” dollars remaining in your capital budget. During the fourth quarter, a hospital can make as many as three or as few as one monthly payment toward a capital expenditure, for example, thereby using money from the current budget to get a head start on planned purchases for the next year.

Equipment financing also can be your most cost-effective choice for capital equipment acquisitions because it can help you manage your tax liability. The IRS does not consider certain equipment financing agreements to be a purchase but rather a tax-deductible overhead expense, which may allow payments to be fully deducted on the company’s tax return.

Hospitals, imaging centers, and private practices acquiring large amounts of capital equipment in the fourth quarter should also consider equipment financing in order to maximize the depreciation on equipment purchased earlier in the year. Businesses acquiring more than 40% of their capital equipment in the fourth quarter are required by the IRS to recalculate the depreciation for all of that year’s equipment purchases. This requirement can cause a dramatic reduction in the amount of depreciation a business can take on its tax returns. Using a tax lease to acquire assets in the fourth quarter can help avoid triggering this rule.

Tax leases allow you to trade in unused tax benefits in return for an overall lower cost of financing. This can be especially helpful if your practice has already maximized its tax deductions this year and cannot use the additional equipment depreciation that comes with new acquisitions to shelter income taxes.

Make sure you consult your tax adviser to clarify your business situation before entering into an equipment financing agreement.

Selecting an Equipment Finance Partner

As with any equipment purchase decision, it is important you get as much information as possible before making a commitment to finance equipment. Once you’ve chosen a finance partner, you can further evaluate which financing product is the best fit for your individual equipment needs.

Keep in mind that the leasing company you select will be responsible for owning the equipment you are relying on, therefore it is important to choose your equipment finance partner carefully. Look for a financially strong and knowledgeable company that:

  • Understands your needs and has the industry experience necessary to be an asset to you.
  • Offers expert guidance.
  • Understands equipment financing, leases, and other debt products serving the health care industry.
  • Is quick in its credit application approval process.
  • Has a track record of stability through economic ups and downs.

Even as radiology professionals meet new challenges in providing the best possible patient care, so must they consider all of the available tools to pave the way for optimal delivery of that care.

In that regard, equipment financing for diagnostic imaging equipment and PACS systems is an effective approach for hospitals, imaging centers, and radiology clinics to maintain stability and continue to progress, even in these high-pressure times.

Erik R. Jensen 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 (720) 304-1000 or . For more information, visit www.KEFonline.com.

Equipment Financing to Ease EHR Adoption

Adoption of electronic health care record (EHR) systems is expected to rise significantly in 2011. Converting your paper patient records to an EHR system can help you:

  • Take advantage of government stimulus funds available from the American Recovery and Reinvestment Act (ARRA) of 2009.
  • Avoid a reduction in Medicaid and Medicare reimbursements when federal EHR use requirements take effect.
  • Enhance patient relationships through better-coordinated care and access to comprehensive health histories.
  • Improve compliance capabilities with regard to patient record privacy requirements.
  • Reduce costs associated with record transcription and physical storage.
  • Realize potential tax savings—EHR systems may qualify as an IRS Code Section 179 equipment expense, which could lower your overall system cost.

The ARRA government stimulus incentives available for the adoption and meaningful use of EHR technology are a powerful enticement that can put tens of thousands of dollars back into the pockets of eligible physicians and substantially more into the coffers of eligible hospitals.

As an example, an eligible physician who begins adopting qualifying EHR technology solutions in 2011 or 2012 can capture the maximum $18,000 bonus in the first year of participation when at least $24,000 in Medicare allowed charges is billed.

Over the full course of the ARRA, Medicaid reimbursement for an eligible professional may be as large as $64,000. The Medicare portion could provide up to $44,000 ($48,500 for those in health care shortage areas) through 2015 for eligible professionals.

How Do You Pay for It?

With the government-stimulus carrot dangling as enticement, practitioners who desire the technology face a tough question: How do you pay for it?

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. Other advantages include:

  • Conserve cash—Avoid large down payments and save your bank line of credit for other uses.
  • 100% financing—Finance the entire project including any necessary enhancements to your existing IT platform, EHR hardware and software, installation, and training services.
  • Easier management of upgrades—Continue to update your system as needed with easy upgrade options.
  • Project financing—Let your equipment finance partner make progress payments to vendors and then convert balances to a term financing arrangement when the system is online.
  • Tax and accounting opportunities—Financing structures that can help you achieve your financial and tax objectives.

Before moving forward on EHR adoption, make sure you talk with your tax advisor about how to leverage the tax benefits of equipment finance and economic stimulus programs for the best results.

—Erik R. Jensen