They say necessity is the mother of invention. If true, one could make the argument that if a stalled credit market is necessity, then leasing and used equipment purchasing is the invention.
Though not new concepts in healthcare, leasing and secondary equipment are getting fresh interest from hospitals and physician groups in need of financing for projects and purchases. Michael Myers, director of healthcare markets for Rolling Meadows, Ill.-based Relational Technology Solutions, says the trend can be traced back to last September when it became obvious AIG would need a government bailout.
“That was really what shut the faucet,” he said. “AIG was the number one underwriter of tax-exempt bonds for hospitals, which is the top funding source for technology purchases and building projects. That money went away overnight with zero warning.”
Without a major financing source, hospital projects and equipment purchases are at a standstill for the moment and it is unclear when cash flow might resume.
In the meantime, hospitals are still in need of equipment to keep their operations going. Myers says the top three capital needs are for information technology, imaging and clinical laboratories. Depending on the situation, leasing can be a potential solution for meeting hospitals’ needs, he said.
“The lease we offer is structured so that it’s off the balance sheet and paid for with operating dollars as opposed to capital dollars,” he said. “This gets around the freeze and helps to make the acquisition.”
One major capital expense that hospitals may not have considered leasing for is IT, Myers said. Yet, he said it’s probably the most logical leasing option there is.
“If you think about it, you don’t want to own your IT – you want to be able to refresh it at periodic intervals,” he said. “American Express, Shell Oil and American Airlines own very little of their IT because they are constantly switching it out.”
To be sure, hospitals are investigating the potential benefits of leasing in much greater numbers, Myers said.
“People are talking to us now who wouldn’t have considered leasing before,” he said. “Bond money was affordable and a more attractive option once; but now that bond money isn’t there. And although other leasing companies are struggling, our ownership made prudent decisions and we’re in a good position now.”
Secondary equipment
Buying used equipment is another area hospitals may not have seriously looked into before, but they will likely be pleasantly surprised if they do, says Diana Upton, president of the International Association of Medical Equipment Remarketers and Servicers.
“In a bad economy, there is always a greater need for pre-owned equipment, as well as extending the useful life of equipment already in place, for the obvious budgetary reasons,” she said. “The advantages are cost savings, both in the sale and service of equipment. The higher the purchase price for new equipment, the greater the opportunity for savings. This is particularly meaningful in lesser-developed countries where capital purchases are much more difficult.”
Launched in 1993, IAMERS is a trade association comprised of 125 member companies worldwide, including the U.S., U.K., Germany, Denmark, Switzerland, Australia, and Japan. Membership consists of large and small companies alike.
The group came together because “there was fear that a small minority of used equipment sellers, through their dishonesty, would taint the industry for all ethical companies,” Upton said. A U.S. Food and Drug Administration plan to impose greater restrictions on pre-owned equipment energized the association, which then set a course to establish higher standards for ethics and professionalism within the industry and aggressively seek fair treatment from regulators.
“Initially, while most of the members were concentrated in diagnostic imaging equipment, there were other types of companies such as those who sold hospital beds or surgical equipment,” Upton said. “Today we only accept members who are in the sales, service or financing of diagnostic imaging equipment. We did this because there’s very little crossover between imaging and other clinical areas.”
IAMERS members’ portfolios include a wide variety of equipment, including general X-ray, C-arms, cath labs, PET and CT scans, MRI, ultrasound, SPECT and nuclear medicine cameras. Other member companies focus strictly on parts sales, service/maintenance, financing and transportation.
Equipment may come from original equipment manufacturers, auctions, brokers or refurbishers. Depending on the circumstance, equipment ranges from two or three years old to about seven years old, Upton said.
The best approach to purchasing secondary equipment is due diligence toward the equipment being acquired, Upton said.
“Equipment listed as ‘as is, where is’ is different from refurbished equipment,” she said. “For this reason, IAMERS advocates that its members label all equipment and make full disclosure as to condition. Buyers should approach the acquisition of pre-owned equipment with the same discipline as when buying new equipment.”