Strategies for a Profitable Radiology Department

Radiology

For many medical imaging providers in private practice and hospitals, the next 12 months will include an investment in capital equipment. From heightened attention on throughput and increased productivity to the approaching meaningful use deadline for electronic health records (EHR), and the fact that many have been delaying equipment upgrades over the past few years due to cash flow constraints, radiology department leaders have equipment investment in the plans for the remainder of 2012.

Still, there are still a lot of questions when it comes to financing. Some providers are uncertain about the implications of pending lease accounting changes and EHR requirements, for example. Others question how to pay for the equipment needed to remain competitive. Mark Hoffman, senior vice president of Key Equipment Finance’s healthcare division, offers insights.

Q: What is the most common question you’re hearing from imaging providers when it comes to financing new equipment?

Mark Hoffman: The most common question we get today is about cash flow and funding. Many providers are concerned with cash flow, typically because of reduced reimbursements, lower philanthropic investment due to the current economy or lower operating income. All these factors make the decision to invest in capital equipment difficult and stressful for providers across the entire spectrum of healthcare.

It’s important to realize, however, that obtaining new equipment isn’t necessarily dependent on cash flow. With equipment financing, an imaging provider can upgrade or invest in new equipment with little to no cash down, and by spreading out payments over the useful life of the equipment, monthly payments can be kept small. Many finance companies offer flexible payment terms, such as deferring payments for the first few months, or structuring payments to match cyclical cash flows.

In fact, in many cases, the equipment is “cash-flow neutral” – or even cash-flow positive – after the first month. Many of the advances in equipment we’ve seen over the past few years make it easier for imaging providers to work more efficiently and increase throughput, which generally results in increased revenue. In these cases, the money generated by the new equipment can be used to pay the monthly payment on the same piece of equipment.

Q: Speaking of increased productivity, let’s talk about EHR. What advice do you have for providers who are trying to figure out how to pay for an EHR system this year?

Hoffman: Like any type of technology, there are several financing options available for EHR systems, and considering the reimbursements and grants available through the American Recovery and Reinvestment Act of 2009 (ARRA), now is an appealing time to invest in an EHR solution.

In addition to EHR, though, we’re seeing a lot of providers, particularly at hospitals, who are investing in solutions that allow them to integrate all their systems so they can store images, share them and move them around, see patient records, and transfer reports throughout the network.

In radiology, we continue to see more interest in financing PACS technology. In X-ray departments, we’re seeing more providers migrate from analog systems to digital radiography systems. Because of the types of equipment involved, all of these electronic systems can be easily financed.

Q: What types of equipment make the most sense to finance and which make more sense to pay for outright?

Hoffman: Any type of equipment can be financed, but technology investments are among the most common. Financing is a smart option for any equipment that you’re likely to replace or upgrade frequently because of the flexible end-of-term options. Rather than paying cash for technology that will be outdated in 18 months, it usually makes more sense to finance that equipment and have the option of upgrading to a newer version at the end of the financing terms.

For practices with ample cash flow, equipment that is less expensive and more likely to be used for an extended period of time is sometimes more likely to be purchased outright, but even then it may make more sense to finance the equipment and use the cash to reinvest in the business.

Q: How will the proposed lease accounting changes impact imaging providers who still want to finance equipment?

Hoffman: In 2009, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) released a statement about the intended changes to current lease accounting treatment. Perhaps the most significant aspect of the proposed changes is the way operating – or “off-balance sheet” – leases are treated from an accounting perspective.

Currently, the FASB and IASB project team is reworking the original proposal in response to feedback gathered during a public comment period last year. Implementation of the final changes would likely take place no sooner than 2015.

Although the exact requirements of the changes are yet to be finalized, it is important to keep in mind that many lease transactions entered into by healthcare companies today will remain largely unaffected. Also, despite the forthcoming changes in accounting treatment, there are still many good reasons – operational and financial – to continue to finance equipment used in the delivery of healthcare.

The bottom line is that despite the proposed changes, most finance companies have flexible financing options and can work with imaging providers to find the best solution based on the practice’s unique needs.