Healthcare Equipment Financing Trends

By: Eric D. Starr :: March 29, 2016

Healthcare costs keep climbing as reimbursement rates continue to decline, forcing many hospitals to close. Options for upfront equipment purchases have become increasingly difficult to justify the cost of new technologies. But while the environment may seem bleak for many, hospitals and healthcare organizations that understand how to employ creative financing structures are finding ways to fund new equipment and expansion. Today, healthcare organizations can secure financing through innovative lease structures that are tailored to their business needs.

Investing in growth

There are several factors working against hospital and health care organization growth. Many struggle to deal with rising costs next to the mandated transition to value-based care from the traditional fee-for-service model. Despite this, forward-thinking hospitals and healthcare organizations are looking for ways to invest in systems that emphasize efficiency and patient satisfaction.

In doing so, these firms are overhauling their existing systems with an eye towards modernizing facilities and investing in current technologies. These efforts include retooling outdated facilities, often taking the opportunity to also expand the physical footprint of those facilities in the process. New equipment purchases have not been purely diagnostic or treatment-related; many firms are electing to invest in the electronic equipment necessary to address the never-ending problem of digitizing and integrating patient health records.

Another area of growth in healthcare has been the “consumerization” of healthcare services. This has taken shape in the form of brick and mortar from free-standing retail clinics to emergency health centers and surgical centers. From Target partnering with Kaiser Permanente to launch retail clinics in California, to organizations such as CityMD expanding throughout NYC, the boom in walk-in medical care has been facilitated by the Affordable Care Act.

As incidents of high-cost diagnoses such as cancer, COPD and asthma, joint disorders, heart conditions, and diabetes continue to rise, more and more providers are sending their patients home with in-home monitoring devices such as heart monitors, blood pressure, scales, telemedicine units. The expansion of telehealth with new remote monitoring systems could help eliminate the existing geographic limitations of medical treatment.

The challenges of capital expenditures

The capital expenditures required for investment and growth poses a difficult challenge for hospital CFOs. Many of the assets that hospitals hold have high rates of obsolescence, giving many CFOs pause to consider whether or not equipment ownership still makes sense in the face of rapid technological change and development. With many of these newer technologies, hospitals are reluctant to invest further capital when the technology is still in a trial phase.

In light of these circumstances, many hospitals have begun opting to lease equipment rather than find traditional funding sources to purchase equipment outright. This provides numerous benefits for hospitals, especially from the perspective of cashflow. Leasing equipment gives hospitals and healthcare organizations the opportunity to have the right devices at the right place at the right time.

Alternative funding solutions are popping up that allow even greater returns on equipment, helping improve a hospital’s financial metrics and performance. Additionally, leasing terms are often very flexible and customizable.

As an example, leasing programs can be constructed to match expenditures with cash flow and revenue, and include clauses for the disposal of existing equipment on flexible trade-in terms. Other terms showing up in leases includes flexible trade-in as well as management of refurbished and off-lease equipment.

Leasing is not only fast becoming the budget-friendly option for hospitals and medical centers as cash tightens, but also becoming more utilized as it supports the real growth in today’s economy.

(as appeared in Axial Industry Insights,

Eric D. Starr, Partner

As a Partner with CapX Partners, Eric is responsible for developing technology-enabled solutions to drive scale and operational efficiency. His areas of focus include origination, underwriting, portfolio management, and finance. As a business developer, Eric's industry emphasis is on healthcare, energy, technology, and manufacturing.

Prior to joining CapX in 2008, Eric worked as a hedge fund manager and was a member of the risk committee at Forest Investment Management. Previous to...