Lease or Buy: Equipment Options for Healthcare Medical Practices
Lease or buy? It's a tough question for healthcare medical practices — especially when equipment is expensive to purchase, costly to fix and requires regular updating to ensure your practice doesn't fall behind. As noted by MD Magazine, 70 percent of medical equipment is leased or financed; only 30 percent is actually purchased. But does that mean that leasing offers the best return on investment (ROI), or are companies simply leasing because that's what they've always done? Let's take a hard look at the pros and cons of breaking the bank to buy big or opting for a long-term lease.
Building Your Practice
Before buying or leasing any new equipment, healthcare medical practices must identify a need. What role does this equipment fill and what are the options? As noted by Bankless Times, there are cases where repairing current equipment or buying cheaper, slightly-used equipment is more cost-effective than opting for completely new technology.
When it comes to buying new, however, there are three typical use cases:
- Your Practice is Expanding: New patients and new services mean you need more physical space, in turn driving the need for new equipment.
- Your Group is Growing: Many medical practices are now part of larger practices, and groups with great reputations attract patient interest. This often requires healthcare organizations to "fill the gaps" and ensure all practices offer the same type, level and specialization of services.
- You Have Specialty Technology: Some fields, such as radiology, depend on highly complex and specialized machinery; new technology is required to ensure continuous service delivery.
Leveraging the Lease: Pros and Cons
According to some experts, leasing is more cost-effective for hospitals and health systems that may not have the assets to buy. Smaller practices may not have the available capital to purchase equipment outright, while larger groups often prefer to keep liquid assets on hand to address emerging needs. Here's a look at the pros and cons of opting for a healthcare equipment lease.
- Predictable Costs: Leases come with a predictable, month-to-month cost and a clear end date, after which there's often an option to purchase the machine or sign a new lease for an upgraded version.
- Reliable Maintenance: Medical equipment is complex and sophisticated, which in practice means it occasionally breaks down. If you own the machine, the cost of repairs comes out of your budget, but most leases come with two- or three-year warranties along with the ability to purchase full-term coverage.
- Capital on Hand: Leasing equipment means more capital on hand for upgrades to physical infrastructure, hiring new staff or purchasing new real estate for expansion.
- Cost Over Time: If you choose a lease, you're paying more than the equipment is worth over time, even if you choose ownership when the term ends. Expect to pay 10–12 percent more for leased equipment than if you were to purchase it.
- You're on the Hook: As noted by Entrepreneur, one downside of leasing is that you're obligated to keep paying even if you stop using the equipment. While it may be possible to cancel the lease and save some money, breaking these agreements typically comes with a substantial fee.
- Long-Term Usage: Much like vehicle warranties, equipment leases for healthcare medical practices often base repair and warranty coverage on typical usage. What does this mean for your business? If your new machine is used all day, every day, it may reach end-of-life before you're done making payments.
Bet on Buying: Pros and Cons
For some practices, buying equipment is the preferred option; the IRS lets organizations deduct the cost of new assets within the first year. Full ownership of medical technology simplifies its use, movement and resale across multiple group practices. Here's what you need to know if you're thinking about buying:
- Total Control: Buying medical equipment gives practices control over exactly what they buy, when and for how much; some newer technology or specialized tools may not be available for lease.
- Reduced Complexity: Purchasing is easy — cash in hand equals equipment on-site. Leasing requires paperwork, finance approval and may include a waiting period before delivery.
- Potential Equity: Some leases include a buy-out option, some don't. Purchased equipment can be used until it's no longer usable or resold to offset the cost of new technology.
- Up-front Costs: Medical equipment is expensive; radiology machines can easily cost upwards of $100,000. For small practices or newly-opened clinics, this may not be viable.
- Outdated Equipment: Healthcare technology is changing rapidly. As a result, it's possible for healthcare medical practices to spend on new tools, only to see them become obsolete in two or three years.
- Repair and Maintenance: No lease means no included maintenance, although many new machines come with basic warranties. Practices must both spend on preventative maintenance and ensure they have on-call support to handle sudden breakdowns.
Should you lease or buy your medical equipment? If you're planning to use the equipment day-in, day-out for years and it's a cornerstone of your practice, buying may be the better choice. If you don't have the capital on hand and want the security of regular maintenance along with a clear upgrade path, leasing is a solid alternative.