Financing Options Remain Plentiful for New and Used Medical Equipment

Financing Options Remain Plentiful for New and Used Medical Equipment

By Michelle Beaver

MOST PEOPLE WOULD AGREE that options lead to freedom, but when too many options exist, even seemingly simple tasks can become overwhelming. The world of medical equipment is no exception, and indeed, the choices there are more numerous than ever.

Every healthcare facility is different, and should therefore tailor the purchasing of new or used equipment to the needs of that individual business. However, general guidelines to the evaluation, purchase and finance of equipment can be helpful to any ambulatory surgery center or surgical hospital. The first step is to look at the equipment that is already there, no matter how hidden or obvious it all may be.

Evaluating

Evaluating equipment may seem simple, but is new to some people, says Michael Gonzalez, a representative of Med-XS Solutions Inc., a medical equipment management service. “A lot of hospitals will have somebody on staff who can handle (equipment management), but a lot of times those people are overwhelmed — especially on the ambulatory surgery center side, the freestanding side — these people may have not ever dealt with that, so all of the sudden you’re getting a new surgical table or surgical lights but then they’re saying, “Oops, what do I do with the other ones?”

Taking stock can require much more time than anticipated, and the bigger the facility, the bigger the task, Gonzalez says.

“Many times the administrator of a surgery center usually has been a head nurse or director of OR at a facility where they never had to deal with (evaluating, disposing of and purchasing) equipment,” Gonzalez says. “It’s more on the hospital side though, that they don’t know what they have in their facility.”

Some reasons for inaccurate inventories include theft and disorganization, problems that compound when no one knows what equipment is supposed to be present in the first place.

“The hospitals, a lot of times they’ll get offsite storage facilities … and they call them black holes,” Gonzalez says. “I always mention the last scene of Raiders of the

Lost Ark where the person is going in and you just see boxes upon boxes. It’s out of sight and out of mind. A lot of times, a medical facility, especially on the systems side or hospital side, they’re paying storage costs for equipment they’re not using.”

Storage fees can really hurt the bottom line, says Brian Hoehn, a director at Med-XS Solutions. Hoehn works with employees of hospitals, surgery centers and doctor’s offices to help them dispose of unused equipment.

“Every square foot of a surgery center is devoted toward patient care and from a financial standpoint, that’s where they are going to make their money,” Hoehn says. “If you have a 10,000 square foot surgery center or less, you can’t afford to have 500 square feet devoted to storage.”

The desire to de-clutter, however, should not lead to haste, Hoehn warns.

“Many (healthcare professionals) throw out equipment or give equipment away to doctors who are leaving even though the equipment could be resold,” Hoehn adds. “The biggest mistake they make is undervaluing, and sometimes overvaluing equipment.”

Cleaning House

Healthcare professionals are getting savvier about business and that sometimes leads to a more mean, lean, and utilized collection of equipment, Hoehn says.

“Now they’re realizing that every area of their hospital, every part of land they have has got to be devoted to doing procedures that they’re going to get reimbursed for so that they’ll have more money coming back into the surgery center, and storage plays no role in that whatsoever,” he says.

When equipment goes out of service, is no longer in use and can’t be traded in, some companies, such as MedXS Solutions, actually send people in to remove the equipment. It is then repaired, sold or recycled.

A lot of equipment can be fixed, but occasionally it’s time to throw in the proverbial towel and buy a new piece.

“Some surgery centers and smaller clinics are cash strapped or budget tight and in that case they may be squeezing as much life out of the equipment as they possibly can,” Hoehn says.

“Once equipment is off the floor and out of sight, it’s not something that (equipment mangers) want to deal with,” he added. “They’re so busy Monday through Friday, 8 to 5, that they never have the time to say, ‘Oh I do need to take care of the items I took out of service last month,’ and last month turns into three months ago, which turns into last year, and then it just builds … they’re overworked and are wearing multiple hats. They’re doing the duties of a senior buyer or another administrator all at once.”

Dismantling, recycling or selling unwanted equipment may be time consuming or cost more than a facility wants to spend, but it is imperative to go “out with the old” in order to go “in with the new.” Space, after all, must be available for when the new equipment arrives.

The facility owners and directors can either spearhead this project themselves, or find some help.

Outsourcing

Numerous options exist for people who are too busy to conduct inventory, find new homes for old equipment, and negotiate the research, purchase and financing of new equipment themselves.

Administrators and owners (especially of ASCs and surgical centers) are typically too busy to deal with those details, Hoehn says.

“With all the consolidation in the hospital and surgery center market where you have these larger health groups that are buying facilities and then becoming these mega health systems, you’re seeing these managers who are not only managing their own assets, they’re going across town to manage another member of the same health system,” he says. “They need to be four different places at once.”

If an administrator or other employee has to worry about the disposal and acquisition of equipment on top of all that, it can add dozens of hours onto a single work week,” he adds.

Some people think it’s better to keep as many decisions as possible in-house, but Hoehn disagrees. If a facility does choose a consultant, they should find one who will ask a lot of questions, he warns.

Equipment consultants can be valuable, and so can one-stop shopping, says Matt Sweitzer, president of Alpine Surgical Equipment, Inc.

“I think it’s good for people to bundle equipment when they can through a single company because usually that will dictate some additional discounted pricing, just based on volume,” Sweitzer says, “and it makes it easier for the purchasing agent because they’re writing one purchase order to one company versus 10 purchase orders to 10 companies. Not if, but when, there are issues regarding warranties or service — because that is going to occur sooner or later — they have one company to call rather than 10. I think it makes everyone’s life a little bit easier, providing they’re getting the same quality from that one company than they would if they had shopped around to a lot of different companies. “(Consultants) are professionals at doing this,” Sweitzer says. “Usually the physician who opens up the new surgery center may only do that once or twice in a lifetime and they’re used to doing surgeries but they’re not used to all the business aspects and the purchasing aspects and the state-by-state requirements and accreditation procedures, Medicare, it just goes on and on.”

Soliciting help allows surgery centers to open faster, Sweitzer says.

“Even though there are some additional costs, I think they recoup those costs fairly quickly by being open sooner and doing procedures,” he reports. “I’ve seen surgery centers that have been delayed opening for six or eight months … either because they went over the limit they could spend on the center or they ran into problems with architectural designs and they had to go back and make changes to the brand new building they just made, or they weren’t able to get through the accreditation process. Every day that they’re not doing procedures they’re losing money.

“(Without a consultant) the individual doctor has to go out and find all the different companies that offer the particular piece of equipment that they’re looking for,” he adds. “How do they know what company is reputable, how do they know which company stands behind their products? How do they know which product is most reliable? They don’t, so often they end up buying strictly on price, whereas if you use a firm, they’ve been doing this for years and years and do 50 projects a year and they have contracts with all the main manufacturers and refurbishing groups, and they know who’s good and they know who’s bad. They get some of the best pricing in the country — a lot better pricing than a doctor going to buy two sets of lights.”

The physician may have to pay a $50,000 fee for the equipment planning and procurement, Sweitzer says, but may “net out a $100,000 savings based on the preferred pricing that they’re getting rather than doing it on their own.”

There is tremendous growth in the equipment planning and consulting industry, says Larry Hampton, CEO and founder of HELP International, an equipment planning and consulting company. Hampton opened HELP about 24 years ago and has been in the industry for 40 years.

“There are hundreds of projects out there to the extent that most of the equipment planners have fairly full houses,” Hampton says. “We’ve all experienced growth and I guess I could say there’s plenty of business to go around.”

HELP re-outfitted the nation’s very first ASC (in Phoenix, Ariz.) and since then has equipped almost 750 other ASCs.

“Quite frankly, I would have thought that the (ASC) market would have matured 10 years ago but it keeps growing and growing,” Hampton says. About 50 percent to 65 percent of HELP’s projects are ASCs. HELP representatives work on a flat fee and that’s “best for a lot of reasons,” Hampton says.

“It doesn’t tie (profits) at all to the amount of equipment purchased or who it’s purchased from,” Hampton adds. “It’s very objective and it’s easy to forecast our revenue and our clients’ consulting expenses. We typically work on a flat fee with a down payment and then equal monthly installments. Our clients like it because they know exactly what they’re paying every month and we know what’s coming in every month.”

Something Old, Something New

Whether to buy used or new is totally conditional and depends a lot on budget and needs, says Carl Welch, director of HealthQuip.

“In the surgery center area and the small hospitals the funds are sometimes very limited of what they can buy, but they find that with the certified equipment they can save anywhere from 30 to 80 percent,” Welch says. Navigating these waters can be murky though.

“When you buy a (new) piece of equipment the manufacturer charges you top dollar which is very expensive,” Welch says. “You have that anesthesia machine that cost $52,000 when it was brand new, however your accounting department has it as depreciated and you may say, ‘I used it for six years and we’re showing a book value of $25,000.’ Well, in actuality, in the fair market where it’s going to be resold or someone will buy it in a recertified manor, it may only be worth $12,000 or $13,000.”

Timing is vital, according to Hoehn.

“A surgery center or a customer may make the mistake of holding on to equipment to where it’s only going to get older, to where it’s going to become less valuable and when they do finally sell it there may not be any value left in it whatsoever,” he says. “I’ve told the customer that the item they’re talking about right now, that this is the best time to sell because it’s at its highest value.”

On the other hand, there are certainly occasions where it’s better to stick with what you’ve got.

“There have been times where I’ve said, “You know what, there is a lot of life left in that piece; you shouldn’t be replacing that yet, hold on to that,” Hoehn says. “A lot of the equipment is built to last.”

Even great equipment requires TLC, however.

“Each piece that you put in a clinical setting must be maintained by a biomedical staff and throughout the year probably needs some replacement parts or some accessories, and it takes a lot of people and time for the upkeep of that equipment even though it may last a long time,” Hoehn says. That’s why he recommends outsourcing of equipment management.

“Very similar to a car, those first 40,000 miles are going to be great, but thereafter it could be a crapshoot,” he says.

An extraordinary amount of used equipment is on the market and has different ways of getting there — some legitimate and some not (theft).

“Typically, (the equipment ends up used) because there is a new purchase that is made and they have upgraded to a new piece of equipment and they have items that have come into excess,” Hoehn says. “A lot of times what manufacturers do to increase their sales of new equipment is they will obsolete older models and that creates the influx in the used market. Then (administrators) feel the need to replace, the manufacturer may or may not take it as a trade-in, and most of the time they do not take the trade-in.

Several companies rebuild this used equipment and put it back on the market.

As for new equipment, physicians often ask for more quality than what they need, especially when it comes to new and exciting gadgets and gizmos, Welch says.

“In the high tech area, CT scanners started up at two slices and they’ve gone up to 64 slices,” he says. “The difference is that you can do a procedure quicker and you can see a lot better with a 64, but a 32 will do just about as good a job, and I think sometimes (medical professionals) look at getting the newest and the greatest equipment instead of using what they’ve got.”

Gonzalez concurs.

“You may have someone who has a lot of influence say, ‘I want this piece,’ but they might not need all those bells and whistles, or that person might leave the facility soon anyway,” Gonzalez says. “We’ve seen a lot of times where a very expensive piece of equipment is kept in a closet because someone left a practice.”

But of course, in a field that deals with constant change, new types of equipment do become necessary. For instance, with the rise in bariatric surgery and obesity, several facilities are ordering sturdier and/or larger equipment, Gonzalez says.

Another popular piece the lasts two years are booms, Sweitzer says.

“They’re very expensive so they can be somewhat prohibitive to the surgery centers, although we are seeing them go into the surgery centers,” Sweitzer says, “and endoscopy is still going strong. The basic equipment that’s out there, the surgical lights, the surgical tables, the anesthesia machines and patient monitors, they’re all pretty status quo. They’re new and improved but there are no great new technologies out there that are really taking the surgery center or hospital world by storm.” Hampton agrees, but says there are some subtle trends.

“Imaging equipment continues to be very fast moving technology and audio-video integration of the operating rooms is very fast growing, and so is the attempt to go paperless with electronic medical records,” he says. “We haven’t really seen much change in open heart surgery and transplant surgery; it’s the same stuff over and over maybe with a little different equipment, but not some radical techniques.”

Purchasing

Purchasing new equipment can be simpler than buying used, but still has its challenges.

“With new equipment, (ASC administrators) can go to any number of original equipment manufacturers (OEMs),” Welch says.

“There could be four or five manufactures and all of them could have different and varied benefits,” he says. “If I was a customer going out and looking for that type of equipment that’s who I’d talk to is the major equipment manufacturers.”

Smaller facilities aren’t solicited as often by suppliers and might not know where to go, Welch says. That’s why they should always do their research first.

While patient care is a number one priority, considering the financial return of equipment is also extremely important, Gonzalez says.

“A lot of people will invest in equipment that they’re not going to get an immediate return on, either through reimbursements or in that the equipment really doesn’t add to a new procedure or a new specialty,” Gonzalez added. “With a surgical light or a surgical table, whether you buy it new, used or refurbished, you’re not going to get the money back on it as you would with something that you could do a new procedure on.”

Standard “garden variety” pieces like exam tables and lights, will not often garner reimbursements,” he adds.

Budgets vary widely even among similar-sized facilities, but generally, a small facility will have a small budget, Welch says.

“Some of the surgery center groups do have money to spend, but quite often the ones set up individually or in two’s have very limited budgets,” Welch adds.

Regardless of budget, every physician-owned facility has access to great deals, and bad deals, says Wynn Blieberg, vice president of sales and financial services for Olympus America.

“I love to drive, let’s say, a Mercedes, but I can only afford ‘X’ dollars a month and that gets me a Toyota,” Blieberg says. “But if someone came to you and said, for that same ballpark amount of money, I could put you in a Mercedes, would you be interested?”

That’s the type of financing that’s available, Blieberg says.

Financing

Financing capabilities are changing all the time, Welch reports.

“We’re seeing a surge in the non-acute, in the surgery centers outside the hospital market,” he adds. “In fact, a lot of physicians, radiologists in particular, are leaving the hospital environment and opening their own imaging centers and performing those same procedures that they performed before, but now they’re getting the money themselves. As those people leave, the money kind of dwindles from the hospital and they have more reason to refurbish.”

The trend toward physician-owned centers is being noticed, Gonzalez says. “The banking industry has seen this and is offering more attractive financial opportunity,” he adds.

Even so, directors or consultants must do their homework. 

“Some of the mistakes that they make is that they go into a decision too quick, really without due diligence and checking on all the options they might have,” Welch says. “As far as for the financing end, quite often the (healthcare facility) does not have the budget set up for new equipment, so sometimes they have to lease the equipment, which quite often is more expensive than buying outright.”

A key component to a successful ASC or surgical hospital is cash-flow, according to Blieberg, which is why a respectable company will “put together a financial product that would allow them to ramp up their business or get their business on more healthy fiscal settings while getting the equipment they need today, but paying for it over time,” Blieberg says.

“It’s paying for the use of the equipment over time rather than having to come up with all the cash up front, or rather than going to a lender that does not have the expertise in healthcare financing,” Blieberg says.

“We look at it like it’s a two-prong sale: technology and finance — what to buy and how to pay for it,” he adds. Part of the customer service that (we offer) is total one stop shopping from technology to equipment maintenance to equipment acquisition alternatives and solutions to all of the above.”

There are several financing mistakes that companies make, Blieberg says. They include:

• Overpaying 
• Agreeing to covenants that are preclusive to their flexibility and operational alternatives during the term 
• Utilizing too much cash upfront 
• Making unnecessary down payments 

“We have noticed that as interest rates have crept up from historic lows, that the cash and equity have been reduced and as a result, if you go into other lending markets the price for acquiring equipment is either more expensive or more restrictive,” Blieberg says.

Customers are often surprised by how many creative financing options are available, he adds.

“Once we get into discussions about maybe having a structured contract, or what we call a ramp up contract, or one with some skipped payments or our cost for procedure, they see — just like people see in mortgages — that there’s not just a 30-year, fixed rate mortgage,” he says.

Physician owners are sometimes gifted in the financial realm, and sometimes not.

“Just like finance people are not MDs, MDs — while they are very astute in a lot of matters — are not experts in the area of finance,” Blieberg says. The curiosity is there though.

“Sometimes when you have a smaller enterprise and have an equity ownership interest in it, you’re going to be more inclined to take participation in the financial decisions as well,” Blieberg states.