With healthcare reform generating so many unknowns, many hospital administrators are looking for ways to build up cash reserves as a defense against worst-case reimbursement scenarios.
Equipment financing, when used to acquire the equipment and technology necessary to sustain delivery of high quality care, is a major way to keep more cash on hand to address any possible delays in reimbursement caused by the Oct. 1, 2014, switch to ICD-10 diagnostic codes. Experts are advising healthcare organizations to have several months' cash reserves to pay rent and staff salaries should any headaches arise from the ICD-10 transition, which will increase active and procedural codes from 20,000 to more than 100,000.
Many hospitals remain focused on cost savings and capital preservation as they await the impact of reimbursement rates and policy changes. But as time goes on, selective investments on equipment replacement and upgrades will be necessary to deliver the same high level of care and prepare for increased utilization from expanded health insurance coverage. In addition, investment in IT infrastructure will become increasingly necessary to meet impending Electronic Health Records (EHR) deadlines.
How Financing Works
Fortunately, equipment financing delivers a strong cash reserve benefit. Readily available for healthcare providers, equipment financing is a way to acquire any type of equipment and conserve cash in the process. Just about any kind of equipment can be financed, whether for imaging, oncology, cardiac or healthcare information technology (HIT) hardware, software and services. In fact, a recent report from Global Industry Analysts Inc. predicts the global market for medical equipment leasing will reach $56 billion by the year 2017.
It is easy to understand why. Many medical and IT equipment vendors proactively offer flexible financing solutions that will fully fund the cost of the acquisition, and in the case of IT, can include the whole package of hardware, software, installation, training and support. If the preferred vendor doesn't offer financing as part of the sales process, independent finance companies can offer similar solutions, all of which allow the healthcare organization to conserve cash while investing in needed equipment.
Once the equipment investment is decided, finance companies can offer flexible and competitive financing structures that may even include upgrade options. This helps healthcare organizations hedge against equipment obsolescence due to the constant evolution of hardware and software.
Conserving Cash
Since the number and cost of payments is determined up front, financing makes it easier for healthcare organizations to forecast the cash requirements of new equipment or systems. This improved cash forecasting is just one of the many benefits of financing.
Other key benefits include:
100 percent financing - Some financing arrangements do not require a down payment. Conserving capital may become even more important as healthcare organizations prepare for ICD-10.
Flexibility - As hospitals and healthcare organizations grow and their needs change, they may be able to add or upgrade equipment or technology solutions at any point during the financing term.
Speed - Lease financing offerings can often be approved quickly and easily, allowing providers to save valuable time under tight deadlines.
Efficient financing alternative to loans - With a lease for equipment or IT hardware, in particular, healthcare organizations can avoid requirements like compensating balances, large down payments, client list reviews and cash-flow projections, making the financing process faster and simpler.
Long installations/progress payments - In the case of HIT solutions, companies with experience funding this kind of solution can structure the financing to include "progress payments" over the course of a long technology installation.
Taking the Next Step
If financing is a major consideration for your hospital or healthcare organization, the next step is choosing a finance partner. Start by asking your equipment vendor if they offer financing, as well as consult with your regular bank or financial institution and with known providers of equipment and IT financing solutions.
During initial consultations, look for a partner that understands your investment objectives, is experienced with the equipment or technology needed and is committed to your relationship over the long term. Since equipment finance results in a multi-year partnership that should provide long-term benefits, another consideration is the financial strength of the finance company.
Most hospitals and healthcare organizations can utilize equipment financing to deepen their well of cash as they face gaps and bumps from healthcare reform. The truth is that while hospitals are mostly viewed in terms of compassion, patient care and dedication to altruistic aims, they also are businesses concerned with revenues and expenses. And just like any other business, a strong cash position is the best defense in uncertain times.