There’s no question that the reimbursement cuts imposed by the Deficit Reduction Act (DRA) of 2005 have had a sizable impact on the imaging industry. Some studies estimate that close to 90% of the procedures affected by the reimbursement rate cuts paid less than the estimated cost of performing the procedure. Times are tough for independent imaging centers, and for the industry as a whole.

As a result, we’ve seen consolidations, start-ups struggling to succeed, and imaging centers looking for every possible way to cut costs and operate more efficiently. We’ve also seen budgets cut for expenses like capital equipment, personnel, and the day-to-day costs of running a business, which can make it hard to remain competitive.

Regardless of whether you operate an outpatient diagnostic imaging center or work in a large hospital, one thing remains the same: having reliable, top-of-the-line imaging equipment is a cornerstone to operating a successful business and providing the best patient care.

However, when faced with consolidation and decreased cash flow, upgrading or purchasing new equipment may seem outside the realm of possibility. Equipment financing may be the answer.

For many, leasing has become the best way to maximize the imaging equipment procurement process largely because it’s a cost-effective way to obtain the newest technology without a large outlay of cash, and because of the inherent flexibility of leased equipment.

Consider Financing

There are many reasons to upgrade or invest in new imaging equipment, but ultimately the value of the equipment comes from using it, not owning it. In terms of managing cash flow, it makes a lot more sense to pay for equipment over time as it is used to generate revenue. Additionally, financing can enable an imaging center to transfer the risks and uncertainties of ownership to the finance company and concentrate on using the equipment as a productive part of business.

Most manufacturers also offer an upgrade path for customers that makes it easy to finance an equipment upgrade, which allows imaging centers to keep up with technology and provide quality patient care while conserving cash and more easily fitting the newest equipment into the budget.

Leasing also protects imaging professionals from technological obsolescence, a concern for anyone investing in technology equipment.

The Benefits Add Up

Some of the other recognized benefits of leasing CT, x-ray, PET, and other types of imaging equipment include:

  • Tax treatment. The IRS does not consider certain leases to be a purchase, but rather a tax-deductible overhead expense. Therefore, physicians can deduct the lease payments from income.
  • 100% financing. Since a lease often does not require a down payment, it is equivalent to 100% financing.
  • Immediate write-off of the dollars spent. With leasing, payments are treated as expenses on the income statement, so equipment does not have to be depreciated over an extended term.
  • Flexibility. As imaging practices grow and needs change, the lessee may be able to add or upgrade equipment at any point during the lease term.
  • Asset management. A lease provides the use of equipment for specific periods of time at fixed payments. The leasing company assumes and manages the risk of equipment ownership. At the end of the lease, if the customer elects to return the equipment, the leasing company is responsible for the disposition of the asset.
  • Upgraded technology. New technology allows imaging professionals to provide better patient care than ever, and today’s specialists have to stay on the cutting edge. Equipment that could depreciate quickly should be leased to limit an imaging center’s risk of getting caught with obsolete equipment. Plus, leases make it easier to upgrade or add equipment to meet ever-changing needs.
  • Improved cash forecasting. When imaging professionals lease, they can accurately forecast the cash requirements for equipment since they know the amount and number of lease payments required.
  • Flexible end of term options. There are typically three flexible options at the end of a term. The lessee can either return the equipment, purchase the equipment from the leasing company, or extend the lease for an additional period of time.
  • Tax benefits. Leasing companies can pass the tax benefits of ownership on to the businesses in the form of lower monthly payments.

One Size Does Not Fit All

Another important benefit of leasing is that there are a variety of leasing products, with the two most common being the capital lease and the operating lease.

The capital lease, also known as a finance lease, offers the widest flexibility of term length, which can help keep payments low. Capital leases also provide a variety of tax benefits, including the ability to write off depreciation and interest expense for the acquired equipment. At the end of a leasing period with a capital lease, there are a variety of options for the next steps. This includes purchasing the equipment at the current fair market value (FMV), renewing the lease at a fixed price, or a $1 purchase option.

With an operating lease, or an “off balance sheet lease,” terms are typically shorter than capital leases and the equipment acts more like a rental. This means the payment does not appear on the company balance sheet. When the term expires, companies may return the equipment, or purchase it at FMV.

Leases also are available that can be tailored to fit month-to-month or year-to-year cash flow needs. Custom arrangements can be designed to address requirements such as cash flow, budget, transaction structure, cyclical fluctuations, and more. Some leases even allow lessees to miss one or more payments without penalty.

Questions to Ask

After identifying an interest in leasing, the next step is choosing a leasing company. Most manufacturers partner with a finance company and offer a lease option as part of the sales process, thereby eliminating the legwork of finding a finance partner.

As with any equipment purchase decision, it’s important to get as much information as possible before making a commitment. Health care professionals also should factor in reimbursement rates and have an understanding of their cash flow strategy as they begin to look at equipment financing.

Following is a list of questions to ask before, during, and after signing a lease in order to get the information you need to make a sound finance decision:

Before

  1. How am I planning to use this equipment?
  2. Does the leasing representative understand my business and how this transaction helps me to do business?

During

  1. What is the total lease payment and are there any other costs that I could incur before the lease ends?
  2. What happens if I want to change this lease or end the lease early?
  3. How am I responsible if the equipment is damaged or destroyed?
  4. What are my obligations for the equipment (such as insurance, taxes, and maintenance) during the lease?
  5. Can I upgrade the equipment or add equipment under this lease?

After

  1. What are my options at the end of the lease?
  2. What are the procedures I must follow if I choose to return the equipment?
  3. Are there any extra costs at the end of the lease?

When it comes to equipment, leasing diagnostic imaging technology is just the tip of the iceberg. Keep in mind that virtually any type of equipment, from office furniture to computer hardware and software to telephone answering systems, can be financed to help physicians and radiologists conserve cash while running a competitive business.

Erik Jensen is a senior vice president at Key Equipment Finance, Superior, Colo, and is in charge of the company’s health care finance segment. For more information, contact .