Key elements to consider when buying equipment for your medical practice
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Key takeaways:
- Before investing in new pieces of equipment, understand the market demand for the services the new or upgraded technology provides.
- A thorough review of the practice’s financial statements is essential.
As medical technology quickly evolves, practices in nearly all areas of medicine must frequently evaluate equipment upgrades and new purchases of new technology to stay at the forefront of patient care.
While new equipment can enhance the capabilities and profitability of a practice, the decision to make such an investment can be a significant one. This article delves into a few key factors to assess before moving forward with an equipment acquisition.
Market analysis
Before investing in a large or expensive new piece of equipment, it is imperative to understand the market demand for the services that the new or upgraded technology can provide. This may involve a thorough market analysis, which would include evaluating competition in the area, assessing consumer demand for procedures enabled by the new equipment, and determining what the reimbursement or fee-for-service pricing will be for those procedures. Understanding these market dynamics will help determine the potential demand for services offered with the new equipment and ensure a competitive advantage.
Financial considerations
Financial due diligence is paramount. A thorough review of the practice’s financial statements is essential to assess the financial feasibility of any substantial investment, including significant equipment investments.
Practice owners should analyze their revenue streams, cash flow and profitability to determine if they have the financial capacity to purchase new equipment. This comprehensive evaluation of the practice's current financial health, along with financial projections for revenue to be generated with the new equipment, will help to determine the overall affordability of the investment.
A key metric to evaluate is the anticipated return on investment (ROI) from the new equipment. Practice owners should estimate the expected additional revenue that could be generated from procedures using the new equipment and compare it to the initial investment. A “break-even” analysis is also valuable, as it calculates the time frame for recouping the investment in the equipment.
Purchasing options: Buy or lease
Once the decision is made to move forward with an acquisition, a medical practice must determine whether to buy or lease the new equipment. Purchasing may entail a considerable upfront cost, but the equipment becomes an asset to the practice. Alternatively, leasing or renting offers lower initial costs and can provide flexibility to use working capital for other investments. Upon lease expiration, the practice may be able to negotiate a lease for a newer model of the equipment so that the latest technology is consistently utilized.
Additional costs post-purchase
Beyond the initial purchase or lease cost, practices should plan for additional post-purchase expenses that can significantly impact the overall investment. These can include hiring and training staff to perform new procedures, equipment maintenance, office modifications to accommodate the new equipment, and the ongoing cost of consumables required for procedures. A budget for marketing the procedures that will be made available with the new equipment is another important factor to consider.
Asset protection and liability considerations
Practices should also contemplate potential liability risks associated with new equipment and procedures that can be performed with it. This includes a review of current insurance coverages to ensure they adequately protect in case of any adverse events involving the equipment. Additionally, exploring asset protection strategies, such as owning the equipment through a limited liability company (LLC), may be justified in certain circumstances.
Case study: Laser investment decision
Dermatologist Dr. Smith was eager to add laser skin resurfacing to the treatments available at her suburban solo practice focusing on general, surgical and cosmetic dermatology. After reviewing the competitive landscape in her area and her patients’ frequent requests for such rejuvenation therapies, she estimated solid consumer demand. The total investment would be $120,000 when factoring in the laser device itself, office renovation, hiring an additional part-time nurse practitioner and initial marketing efforts.
Dr. Smith thoroughly analyzed her practice’s financials to gauge whether projected revenue could support the purchase. She conservatively projected the laser would generate at least $7,000 in monthly revenue once her staff gained experience with the equipment. Moving forward with a 36-month lease, rather than purchasing outright, also eased some of the risk. The lease estimate factored in maintenance fees and variable costs per procedure like ancillary skin care products.
Beyond her financial diligence, Dr. Smith was aware that adding lasers inherently elevates the risk for malpractice liability. Prior to her laser purchase, Dr. Smith contacted her insurance advisor to confirm that her current policy covered laser procedures. Based on Dr. Smith’s financial analysis, ROI projections and asset protection considerations, acquiring the laser made financial sense to her and her practice’s financial advisor.
Conclusion
While investing in new equipment can be a game-changer for medical practices, careful consideration of financial data, practice operations and liability risk is mandatory to support a successful integration into the practice. Moving too rapidly or without adequate due diligence can result in costly disappointments. By understanding and assessing these considerations, practice owners can make informed decisions that help their practices thrive while delivering cutting-edge patient care.
Reference:
Mandell and OJM Group partners are pleased to announce the 2024 publication of our newest book, Wealth Strategies for Today’s Physician: A Multi-Media Playbook. The book’s innovative format features more than 90 links to videos and podcast episodes to enhance important financial topics for physicians. To receive a free print copy or ebook download, text HEALIO to 844-418-1212, or visit www.ojmbookstore.com and enter code HEALIO at checkout.
For more information:
David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group, www.ojmgroup.com. He can be reached at 877-656-4362 or mandell@ojmgroup.com.
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