Renting vs. Buying: 6 Things Medical Practices Should Consider
Despite an influx of patients due to the Affordable Care Act, physicians struggle to adhere to ever-changing regulatory requirements, pay for staff salaries and benefits, and cover all other overhead costs. Unfortunately, they don’t always have the luxury of being able to purchase the latest and greatest medical equipment. That’s why renting may be a viable option.
Robert Preville, founder and CEO of KWIPPED.COM, says physicians are increasingly looking toward rental options for several reasons, one of which is the appeal of lower up-front costs.
“A lot of physicians have student loan debt,” says Preville. “They may not be able to go out and get a loan for $100,000 to purchase a piece of equipment.”
Like any small business, physician practices may want to preserve cash for operating capital or purchasing other assets, such as an electronic health record, that offer a larger return on investment. This is true for practices of all sizes and specialties and especially those going through a rapid expansion, he says.
Physicians who rent medical equipment can also use the rent as a tax write-off.
When physicians purchase equipment outright, they’re unable to deduct the rent from the practice’s taxable income. Instead, they must generally expense the equipment over time according to an IRS depreciation schedule, says Preville.
Many small practices and solo practitioners also rent medical equipment as a way to test proof of concept before venturing into a particular service line. For example, a plastic surgery practice may rent a 3D scanner that provides patients with surgical prototypes before deciding to formally offer those surgical options.
Practices often rent equipment to assess demand before making a larger financial commitment, says Preville. “Once you’ve established that the new equipment will drive real revenue and consistent revenue, it may become more economical to purchase,” he says. “You can quickly pay it down, and then the profit associated with that equipment becomes significantly higher because you don’t have that ongoing [rental] expense.”
One of the most common reasons why medical practices rent equipment is simply to ensure uninterrupted operations while equipment is repaired or recalibrated, says Preville. Other practices simply want access to the most advanced technology to enhance patient satisfaction and produce positive outcomes. An optometry practice, for example, may rent specialized testing equipment so that patients don’t need to travel elsewhere to obtain this care. Other practices realize that equipment may become obsolete by the time they are done paying for it and opt to rent instead.
The choice to rent versus buy is a business decision that will vary according to each practice’s unique needs and goals.
As practices make this decision, they should consider the following:
- How often must the practice replace the equipment? Renting may be a viable option for equipment that is constantly replaced and/or repaired.
- How quickly will the technology evolve? Renting may be the best option for equipment that evolves rapidly so that practices don’t over-invest in technology that will quickly become obsolete.
- What types of costs are associated with maintaining the equipment? Ongoing costs could be a barrier for some practices. In a rental arrangement, the vendor may absorb many of these costs.
- What are the practice’s goals? Does it want to measure demand for a particular service? If so, renting may be a less risky approach.
- Does the practice want flexibility? Renting offers maximum flexibility, particularly if the practice wants to be able to make changes or even change vendors.
- What is the practice’s financial picture? Can the practice afford to absorb a significant up-front cost? If not, can the practice attain a line of credit? What expenses might the practice incur in the near future, and might the operating capital be useful for a different purpose?