One result of the Patient Protection and Affordable Care Act of 2010—commonly known as “Obamacare”—is that physicians are being incentivized to adopt Electronic Medical Records (EMR) technology.
Beginning in 2015, unless a physician demonstrates “meaningful use” of EMR systems, Medicare reimbursements will begin to be reduced at a rate that will increase each year.
Meanwhile, the American Recovery and Reinvestment Act of 2009—commonly known as the “stimulus package”—is encouraging doctors to switch to EMR systems by offering Medicare incentive payments to those who do.
Whether they’re ready or not, the time is now for hospitals, physician’s groups, and individual practices to modernize their patient recordkeeping by investing in EMR systems. This imperative to implement EMR systems as soon as possible has led many enterprises to consider leasing the technology rather than buying it with cash or using a commercial line of credit.
There are many reasons to lease EMR systems, including:
- Potentially lower equipment cost if equipment is returned on time at the end of the lease and other terms are well-negotiated.
- Preservation of working capital.
- Maintenance of bank line availability and avoidance of covenant issues.
- Off-balance-sheet treatment of the expense (for leases classified as operating leases under current accounting rules).
- Ability to procure the EMR equipment without sufficient cash to buy it, allowing physicians to avoid the penalties and take advantage of the incentives offered by the government.
EMR Manufacturers vs. Independent Leasing Companies
Many leading manufacturers of EMR systems offer financing, and they can be the best lease option in some cases. But it’s important for doctors to compare the cost of leasing the equipment from a manufacturer to the cost of leasing from an independent leasing company.
This comparison can be difficult to make because manufactures typically include services with their equipment leases. These services can be quite valuable, but they cloud the picture of how much the actual equipment costs.
Despite these challenges, medical providers that want to ensure they get the best value for their investment in EMR systems should take the time to conduct a full financial analysis of the competing proposals from manufacturers and independents to determine the actual leasing cost in each proposal. Even if a decision is made that the services provided by a manufacturer are worth the cost, knowledge of the underlying equipment lease costs — isolated from the services — will allow benchmarking against the cost of equipment in other proposals. This can help doctors negotiate lower lease rates by insisting that the manufacturer provide a more-competitive quote for the equipment cost.
Leasing vs. Financing vs. Cash
The full financial analysis necessary to compare leasing options is also needed to help decide whether it’s preferable to lease or purchase. In making this decision, it’s critical not to overlook or underestimate the many substantial risks of leasing. For example, terms and conditions that make compliant return of the EMR system extremely difficult can lead to lease extensions that escalate the total cost of equipment far beyond what it would have cost to buy, even if the purchase was financed.
Conclusion
Medical providers are being driven to EMR systems by recent federal legislation, but in the rush to get a system in place, hospital financial executives should be wary of paying too much to lease equipment from EMR manufacturers, and they should be well aware of the risks of equipment leasing in general.
