Medical centers, clinics, physician practices and hospitals who are in dire need of updating their MRI machines, operating room tables or waiting room furniture, there’s now a far better option. Although the majority of medical practices still purchase their new equipment outright or even buy used equipment, leasing and financing that same equipment is the smartest and most financially viable option and its usage is on the rise according to equipment leasing and financing marketplace

 

According to a research done by GIA (Global Industry Analysts), the market for medical equipment leasing is estimated to increase to $56 billion by 2017. This is largely due to rapid increase of chronic diseases, which in turn enhances the demand for sophisticated medical and diagnostic equipment. This type of highly specialized equipment is typically extremely expensive to purchase. Smart medical facilities and medical centers, in an effort to avoid incurring such high costs, are increasingly turning to medical equipment leasing and financing

 

Another key factor contributing to the increase of medical equipment demand is the constant advancement of technology. Today’s medical equipment is extremely sophisticated and is constantly changing with evolving technology. For a busy medical center or doctor’s office who purchases their equipment, keeping up with the change in technology can be very expensive – especially for smaller health care facilities. This is why many medical offices are turning to a medical equipment leasing companies to help them upgrade equipment on a regular basis without incurring high costs.

 

Until just a few years ago, medical equipment leasing and financing was relatively unheard of in the United States. This was largely due to lack of awareness of how leasing really works. However, recent trends have reversed - in that 40% of medical equipment in the United States is now leased. But still a startling 60% of medical equipment is either purchased or rented despite the enormous financial advantages.

 

Today, healthcare providers often find it more economical to lease equipment rather than buy it. A lease is usually cheaper than a conventional loan is, and some leases offer a more flexible payment schedule than is permitted in typical bank financing. For example, leases today often give the lessee the option to purchase the equipment within the first half year and terminate the lease, although this option often requires an additional fee to exercise it. In addition, banks and other traditional lending institutions usually report loans to credit bureaus, but equipment financing companies generally do not. This factor is relevant to providers that are concerned with maintaining a favorable debt service coverage ratio.

 

Leasing equipment rather than buying it serves several other purposes. First, a lease involves small up-front costs or even no up-front costs, allowing the healthcare provider’s cash to be used for other business needs (for instance, inventory). For example, EZ Medical Lease (a subsidiary of Washington Trust) will cover the entire purchase price of the equipment and, through WashingtonTrust’s business partner Synergy Inc., will also cover software costs. By preserving working capital, a lease enables the healthcare provider to leave credit lines unobstructed for immediate cash requirements and short-term purchases.  Second, because healthcare is in the forefront of cutting-edge product development, equipment becomes obsolete quickly. Leasing, instead of owning, equipment permits the healthcare provider to replace equipment in line with changes in technology. Concern with using outdated equipment is especially prevalent in specialized medical practices. Leasing allows for perpetual equipment upgrades and shifts the risk of obsolescence to the lessor. A third factor in favor of leasing is that the provider may try out new forms of equipment and processes without committing to them. Fourth, capital budgeting is subject to closer scrutiny and a longer approval process than leasing is. If the board must weigh in on capital purchases, the hospital chief executive officer can avoid bureaucratic delays by getting the equipment through a lease.

 

The healthcare industry has been beset by enormous financial challenges sincethe beginning of the credit crisis. Capital spending has declined significantly.This situation has increased the attractiveness of leasing equipment. For-profit healthcare companies and providers may still wish to take advantage of Internal Revenue Code Section 179(a) with its broad allowance for expensing equipment purchases and capital leases. Nonprofit providers will be faced withthe traditional choice between leasing and buying equipment and the furtherchoice, if leasing is preferred, between capital and operating leases, with the expectation that the accounting differences between these two kinds of leases may cease in the near future.  Both for-profit and nonprofit providers are strongly encouraged to assess the impact of treating operating leases under the accounting rules now applicable to capital leases. The implications for compliance with debt covenants in bond and loan documents may require careful analysis and planning.

The Medical Equipment Marketplace (Continued)

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