Leasing market growing for health care equipment

The leasing market for health care equipment is growing by about 7% annually and should exceed $8 billion in volume by 2007, and physicians are playing a significant role in the industry's growth, according to a recent report.

The appeal of new technology and revenue-enhancing equipment is driving the increase of capital acquisitions, states "Healthcare Equipment Leasing: U.S. Market Dynamics and Outlook, 2005-2007," a report released by the Arlington, Va.-based Equipment Leasing Assn.

Most investments fall in a range between $250,000 and $5 million, and diagnostic equipment is the leading category in terms of money invested, the report says.

That dollar range is low enough for a hospital or large multispecialty group to consider simply purchasing the equipment with cash or through a loan, but smaller physician groups often turn to leasing as a way to finance their capital expenditures, said Rick Carmichael, managing director of R.S. Carmichael & Co. a market research firm that conducted the study.

"The concept of leasing is fairly widely accepted by physicians," Carmichael said. "The degree of leasing a lot of times is a function of where they are in terms of practice life."

As physicians watch their reimbursements decline and overhead costs increase, they are looking for other possibilities to boost revenue. Many are turning to ancillary services they can offer in their offices, such as ultrasound imaging or small MRI machines. They also are considering technology investments to enhance their practice's productivity and collection capability. But these projects come with substantial costs, and not every group has the assets to afford even a down payment to get a bank loan.

A new practice with limited capital, for example, probably would consider leasing the necessary equipment, Carmichael said.

Groups in transition, such as those in which a physician is considering retiring or practices that are planning to merge, also might be leasing candidates, he said.

Established practices have reasons to consider leasing their equipment as well. If a group is worried about technology advancement rendering equipment obsolete every few years, leasing might make it easier to keep up with those upgrades.

Gulfcoast Orthopaedic Center P.A., a six-physician practice in Sarasota, Fla., has several other reasons for leasing much of its big-ticket equipment, including a digital X-ray system and an MRI machine. With Florida's litigious medical liability environment, leasing equipment protects the physicians from having more assets that a plaintiff could pursue if one files a lawsuit, said Adam Bright, MD, an orthopedic surgeon with the group.

The group also doesn't have to worry about buying technology upgrades for its machines or finding someone to repair a copy machine if it breaks down. If the equipment is under a lease, someone simply calls the manufacturer, Dr. Bright said.

"We're doctors; we don't know how to repair copiers," Dr. Bright said.

While leasing has its advantages, it's usually the more expensive option compared with simply purchasing the equipment, said Will Latham, a Charlotte, N.C.-based health care consultant. Groups would be wise to compare leasing and purchasing options to see which would be more economically attractive, he said.

Lease rates generally run higher because the company has to cover its own costs plus make a profit, Latham said. "A doctor may need the equipment and decide he can handle the payments, so he leases," he said.